MmO/: 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LffiRARY 


^mmv 


s^^g 


\\lLlBRARYa 


NMV^'      ^'Hmun-^ 


=5V 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/bledsoesbusinessOOblediala 


A.  J.  BLEDSOE 


Business  Law 


FOR 


BUSINESS    MEN 


A  Reference  Book  Showing  the  Laws  of  California  for 
Daily  Use  in  Business  Affairs 


EIGHTH   EDITION 


Revised  1909 


By  A.  J.  BLEDSOE 

Member  of  Lee'islature  of  California  from  Humboldt  County,  Sessions  of  1891, 
1893,   1895 


PUBLISHED    BY 

BUSINESS   LAW    PUBLISHING    COMPANY 

902  Metropolis  Bank  Building 

SAN  Francisco   -    California 

1909 

PRICE,  -  -  -  $4.00 


T 


INTRODUCTION 

My  experience  and  observation  during  a  busy  life  in  the 
practice  of  law  have  served  to  demonstrate  to  me  that  much 
vexatious  and  expensive  controversy,  arising  from  a  lack 
of  knowledge  of  the  laws  of  the  State  on  matters  of  every- 
day business,  might  be  avoided,  if  business  men  had  the 
means  of  ascertaining  at  the  moment  what  their  rights  and 
liabilities  would  be. 

Men  usually  go  to  a  lawyer  after  a  controversy  has  oc- 
curred, and  seek  a  lawyer's  advice,  not  to  keep  out  ,  of 
trouble,  but  to  be  extricated  from  it.  The  plan  of  this 
work  is  to  so  arrange  and  illustrate  the  laws  of  California 
pertaining  to  ordinary  business  affairs,  and  rights  and  obli- 
gations in  many  relations  of  life,  that  a  busy  man  can  turn 
immediately  to  the  page  and  section  and  find  the  infor- 
mation he  needs,  before  assuming  a  liability  himself  or 
attempting  to  enforce  a  right  against  others. 

A.  J.  BLEDSOE. 


WHAT    SUPREME    COURT  JUDGES   SAY 


JUDGE  WALTER  VAN  DYKE. 

About  a  year  before  his  death,  Walter  Van  Dyke  wrote 
the  following  letter  concerning  one  of  the  earlier  editions 
of  the  book: — 

Judicial  Department,  Supreme  Court, 
Chambers  of  Associate  Justice  Walter  Van  Dyke. 

San  Francisco. 
A.  J.  Bledsoe,  Esq.,  Attorney  at  Law. 

Dear  Sir: — 

I  have  received  a  copy  of  your  book  entitled  "Business 
Law  for  Business  Men,"  and  you  will  please  accept  my  thanks 
for  the  same.  The  book  contains  the  code  law  of  the  State, 
conveniently  arranged,  bearing  upon  the  most  important  sub- 
jects pertaining  to  business  affairs,  and  cannot  fail  to  be  of 
great  service  to  business  men,  for  whose  benefit  it  appears 
to  have  been  specially  intended,  but  will  also  prove  to  be 
very  convenient  and  useful  to  the  practicing  lawyer. 

Very  truly  yours, 
WALTER   VAN    DYKE. 

(V) 


VI  WHAT  SUPREME  COURT  JUDGES  SAY. 

JUDGE    F.    M.    ANGELLOTTI. 

State  of  California, 

Judicial  Department,  Supreme  Court, 

Chambers  of  Associate  Justice  Frank  M.  Angellotti. 

San  Francisco. 
A.  J.  Bledsoe,  Esq. 
Dear  Sir: — 
I  appreciate  your  courtesy  in  sending  me  a  copy  of  your 
book,  "Business  Law  for  Business  Men,"  and  the  limited  ex- 
amination I  have  been  able  to  give  it  satisfies  me  that  it  is 
a  very  creditable  work,  containing  much  useful  information. 

Yours  very  truly, 

F.  M.  ANGELLOTTI. 


JUDGE    LUCIEN    SHAW. 

State  of  California, 

Judicial  Department,  Supreme  Court, 

Chambers  of  Associate  Justice  Lucien  Shaw. 

San  Francisco. 
Mr.  a.  J.  Bledsoe. 
Dear  Sir: — 
I  have  examined  your  "Business  Law  for  Business  Men" 
with  some  care,  and  am  very  much  pleased  with  it.     It  is 
concise,  the  style  is  clear,  and  the  matter  generally  accurate 
and  complete.     It  is  the  best  work  of  the  kind  that  I  have 
seen.  Yours  very  truly, 

LUCIEN  SHAW. 


CHIEF    JUSTICE    BEATTY. 

State  of  California, 

Judicial  Department,  Supreme  Court, 

Chambers  of  the  Chief  Justice. 

San  Francisco. 
A.  J.  Bledsoe,  Esq. 
Dear  Sir: — 
At  the  time   I   received   your  book    ("Business   Law   for 
Business  Men"),  and  for  some  time  after,  I  was  too  busy 
to  examine  it  with  any  care,  and  only  lately  have  done  so. 
As  the  result  of  such  examination,  I  am  happy  to  sa)"^  that  I 
find  it  very  accurate  and  trustworthy,  and  should  think  it 
would  be  very  useful  to  non-professional  men  in  ordinary  mat- 
ters of  business.  Yours  truly, 

W.  H.  BEATTY. 


INDEX  TO   SUBJECTS 

PAGE 

Agreements  for  Sale  48-51 

Auction  Sales  73-75 

Accident  Insurance    231-236 

Accident  Insurance  Agents   236-237 

Architects    291-297 

Assignment  for  Benefit  of  Creditors 396-402 

Attachments     466-474 

Administration  of  Estates  651-675 

Building  Contracts   250-268 

Bills  of  Exchange  382-388 

Bank   Checks 389-396 

Commission  Merchants   I53-IS9 

Carriers  of  Freight 371-380 

Collection  of  Bills  and  Accounts 403-412 

Corporations  in  California 487-581 

Deposit  of  Personal  Property 75-77 

Damages  for  Breach  of  Contract 308-311 

Employer  and  Employee 129-135 

Fire  Insurance  Contracts  184-215 

Fire  Insurance  Agents   215-222 

Hotel  Keet)ers  and  Lodging-House  Keepers 93-100 

Installment  Sales  of  Personal  Property 62-66 

Installment  Sales  of  Real  Estate 125-129 

Judgments  and  Executions 475-477 

Landlord  and  Tenant   loo-i  14 

Life  Insurance  222-231 

Life  Insurance  Agents  231 

Liens  for  Salary  and  Wages 297-298 

Logger's  Lien 303-305 

Liens  on  Personal  Property  300-303 

Liens  of  Persons  Working  on  Threshing  Machine 305-306 

Liens  in  Favor  of  Owners  of  Stallions,  Jacks,  and  Bulls 306-308 

Letters  of  Credit   380-382 

Last  Wills  and  Testaments  478-486 

Making  of  Contracts 33-48 

Master  and  Servant   135-136 

Manufacturer's  Agents  150-153 

Marine  Insurance  237-249 

Marine  Insurance  Agents  250 

Mechanics'   Liens    269-291 

(vii) 


^^  INDEX  TO  SUBJECTS. 

PAGE 

Mortgages   441-464 

Mines  and  Mining 583-622 

Notary  Public   364-371 

Principal  and  Agent  136-145 

Partnership    3II-339 

Promissory  Notes  413-441 

Real  Estate  Agents   159 

Sale  of  Personal  Property 51-62 

Stoppage  in  Transit  66-68 

Storage  of  Personal  Property ^^ 

Storage  in  Warehouses 77-93 

Sale  of  Real  Property  1 14-125 

Surveys  of  Land  339-355 

Spaulding's  Table  for  Measurement  of  Logs 355-359 

Searchers  of  Records   360-364 

Vendor's  Lien 298-300 

Warranty  of  Personal  Property  68-73 

Wholesaler's  Agents    146-150 

Water  and  Water-Rights   623-650 


INDEX  TO   FORMS 

PAGE 

Agreement  to  Sell  Real  Property 49 

Agreement  to  Sell  Personal  Property 50 

Articles  of  Incorporation    488 

Assessment  of  Stock,  Notice  of 521 

Appropriation  of  Water,  Notice  of 624 

Assignment  of  Mortgage  465 

Bill  of  Sale 55 

Builder's  Contract   253 

Deeds — 

Deed  of  Gift   IIS 

.Bargain  and  Sale  Deed 117 

Quitclaim  Deed    118 

Warranty   Deed    120 

Corporation   Deed   and   Acknowledgment 121 

Fire  Insurance  Policy,  Standard  Form t.  207 

Installment  Agreement  for  Sale  of  Real  Estate 128 

Installment  Agreement  for  Sale  of  Personal  Property 65 

Landlord  and  Tenant — 

Lease  of  Land  lOi 

Lease  of  Agricultural  Lands  102 

Assignment  of  Lease   104 

Notice  to   Quit 109 

Notice  to  Pay  Rent  or  Surrender  Possession no 

Lease  of  Personal  Property in 

Farming  Lease  on  Shares    1 12 

Mortgages — 

Real  Estate  Mortgage 449 

Chattel  Mortgage  452 

Mines  and  Mining — 

Notice  of  Location  of  Lode  Claim $86 

Notice  of  Location  of  Placer  Claim 587 

Proof  of  Assessment  Work  594 

Mining  Lease    602 

Oil  Lease   606 

Mining  Deed   610 

Notice  of  Sale  of  Stock  for  Delinquent  Assessment 523 

Olographic  Will   482 

Promissory  Notes — 

Ordinary  Note    ■ 421 

Note  Signed  with  an  X  423 

Note  Payable  on  or  before  a  Certain  Date 424 

(ix) 


*  INDEX   TO  FORMS. 

PAGE 

Promissory  Notes  (Continued)  — 

Joint  Note   427 

Joint  and  Several  Note  427 

Notice  of  Dishonor  439 

Partnership  Agreement   337 

Power  of  Attorney  to  Make  Deed .^ 125 

State  Homestead — 

Declaration  of  Homestead  by  Husband  and  Wife 445 

Declaration  of  Homestead  by  Husband 447 

Declaration  of  Homestead  by  Wife 448 


CONTENTS 


Section 

I. 

Section 

2. 

Section 

3- 

Section 

4- 

Section 

5- 

Section 

6. 

Section 

7- 

Section 

8. 

Section 

Q. 

Section 

10. 

Section 

II. 

Section 

12. 

Section 

13- 

Section 

14- 

Section 

1.=;. 

Section 

i6. 

Section 

17- 

Section 

i8. 

Section 

IQ. 

Section 

20. 

Section 

21. 

Section 

22. 

Section 

22a. 

Section 

22b. 

Section 

2.3. 

Section 

24. 

Section 

24'/^. 

Section 

25. 

Section 

25K2. 

Section 

26. 

Section 

27. 

Section 

28. 

Section 

2Q. 

Section 

30 

PART   I 

Business  Contracts  and  Legal  Obligations 
MAKING   OF   CONTRACTS 


-Business  Contracts   '. 33 

-Parties  to  Contracts  33 

-Consent  of  Parties  to  Contract 35 

-When  Consent  Is  Not  Mutual 36 

-Proposal  of  Contract,  Acceptance  and  Revocation..  36 

-Objects  of  Contract 37 

-Consideration  of  a  Contract 37 

-What  Contracts  May  Be  Verbal 2)7 

-What  Contracts  Must  Be  in  Writing  38 

-Contracts  Against   Public   Policy    39 

-Contracts  in  Restraint  of  Trade 39 

-Sale  of  Good-Will  of  a  Business 40 

-Alteration  of  Verbal  Contract 40 

-Alteration  of  Written  Contract 41 

-Express  Contracts  41 

-Implied  Contracts   41 

-Termination  of  Contracts  42 

-Rescission  of  Contract    42 

-Extinction  of  Written  Contract  by  Cancellation 42 

-Interpretation  of  Contracts   42 

-Printed  and  Written  Parts  of  Contract 43 

-Time  of  Performance  of  Contract  43 

-Place  of  Performance  44 

-The  Cartwright  Law   44 

AGREEMENTS   FOR   SALE 

-Kinds  of  Agreements  for  Sale 48 

-Agreement  to  Sell  Real  Property 48 

-Form  of  Agreement  to  Sell  Real  Property 49 

-Agreement  to  Sell  Personal  Property 50 

-Form  of  Agreement  to  Sell  Personal  Property 50 

SALE  OF  PERSONAL  PROPERTY 

-When  Goods  Sold  Must  Be  Delivered 51 

-Where  Delivery  Must  Be  Made 52 

-When  Price  of  Goods  Bought  Must  Be  Paid 52 

-Right  to  Inspect  Goods  Before  Acceptance 52 

-Expense  of  Transportation 52 

(xi) 


***  CONTENTS. 

PAGE 
Section      31. — Buyers'  Directions  as  to  Manner  of  Sending  Things 

Sold   53 

Section    31a. — The  Bulk  Law  53 

Section    31b. — Bill  of  Sale  54 

Section    31c. — Form  of  Bill  of  Sale 55 

Section    3id. — Adulterated,   Mislabeled  or  Misbranded  Foods  and 

Liquors    55 

Section     3ie. — Cold  Storage  Eggs  and  Poultry  56 

Section     3if. — Sanitary  Regulation  of  Food  Producing  Establish- 
ments      56 

Section    3ig. — Poisonous   Confectionery    60 

Section    3ih. — Manufacture  or  Sale  of  Stuffed  Furniture 60 

Section     3ii. — Adulteration  of  Dairy  Products 61 

Section     31J. — False    Advertisements 62 

INSTALLMENT  SALES  OF  PERSONAL  PROPERTY 

Section    31k. — Conditional  Sales  of  Personal  Property 62 

Section     31 1. — Language  of  the  Contract  63 

Section    31m. — Default  in  Payments   ; 63 

Section    3in. — Sale  by  Vendee  to  Another  Person 63 

Section     310. — Remedy  of  Seller  in  Case  of  Purchaser's  Default...  64 

Section    3ip. — Money    Already    Paid 64 

Section    3iq. — Absolute  Sale  on  Installments   65 

Section     31  r. — Form  of  Conditional  Agreement 65 

Section     31s. — Selling  as  a  Pledge  66 

STOPPAGE   IN   TRANSIT 

Section      32. — When    Seller    or    Consignor    May    Stop    Goods    in 

Transit   (y^ 

Section       -^Z- — Resale  of  Personal  Property  68 

Section      34. — What  Will  Defeat  Vendor's  Right  to  Stop  Goods..  68 

WARRANTY   OF   PERSONAL   PROPERTY 


Section      35. — Warranty  of  Title    68 

Section      36. — Warranty  on  Sale  by  Sample  69 

Section      Zl- — Warranty  on  Agreement  to   Sell   Merchandise  Not 

in  Existence  69 

Section      38. — Manufacturer's  Warranty  Against  Defects  70 

Section      39. — Warranty  of  Soundness   '. 70 

Section      40. — Warranty  by  Trade-marks  and  Other  Marks 70 

(a) — "Trade-mark"   Defined    70 

(b) — Recording  Trade-marks    71 

(c) — Assignment  of  Trade-mark  71 

(d) — Protection  of  Trade-marks   71 

Section      41. — Warranty  of   Provisions   for   Domestic  Use 72 

Section      42. — Warranty  on  Sale  of  Good-Will  of  Business 72 

Section    42a. — Damages  Allowed  on  Breach  of  Warranty 72 

AUCTION   SALES 

Section      43. — Authority  of  Auctioneer  "JZ 

Section      44. — When  Auction  Sale  is  Complete 73 


CONTENTS.  ^" 

PAGE 

Section      45. — Withdrawal  of  Bids  74 

Section      46. — Auction  Sale  under  Written  Conditions 74 

Section      47. — Auction  Sale  without  Reserve  74 

Section      48. — Frauds  upon  the  Buyer   75 

Section      49. — Auctioneer's     Memorandum    of    Sale    Binds    Both 

Parties    75 

DEPOSIT  OF  PERSONAL  PROPERTY 

Section      50. — Deposit  for  Safe  Keeping 75 

Section      51. — Deposit  for  Exchange  75 

Section      52. — Obligations  of  the  Depositary   76 

Section      53. — Things  Which  Will  Excuse  Delivery 76 

(a) — Sale  of  Personal  Property ^^ 

STORAGE  OF  PERSONAL  PROPERTY 

Section      54. — Storage   ^^ 

Section      55. — Care  to  Be  Taken  of  Thing  Deposited '^^ 

STORAGE   IN    WAREHOUSES 

Section      56. — Warehouse    Receipts ']^ 

Section      57. — Negotiability  of  Warehouse  Receipt 79 

Section      58. — Removal  of  Property  by  Warehouseman 80 

Section      59. — Delivery  of  Property  by  Warehouseman 80 

(a) — Duplicate  Receipt 82 

Section      60. — Liability  of  Warehouseman  83 

Section      61. — Warehouseman's   Liability   for   Delivering   Property 

to  Wrong  Person    84 

Section      62. — Warehouseman's  Liability  for  Loss  by  Fire 84 

Section      63. — Sale  of  Property  for  Storage  Charges 85 

Section    63a. — Negotiation  of   Warehouse  Receipt 88 

Section    63b. — Fraud  by  Warehouseman 91 


HOTEL  KEEPERS  AND  LODGING-HOUSE  KEEPERS 

Section      64. — Liability    of    Hotel    Keepers    and    Lodging-House 

Keepers    93 

Section      65. — Exemption  from  Liability  in  Certain  Cases 94 

Section      66. — What  Property  Must  Be  Deposited  in  the  Safe 95 

Section  67. — Liability  of  Hotel,  Boarding-house,  and  Lodging- 
house  Keepers  for  Loss  by  Fire 96 

Section  68. — Liability  of  Hotel,  Boarding-house,  and  Lodging- 
house  Keepers  for  Loss  by  Theft 97 

Section  69. — Liability  of  Hotel,  Boarding-house,  and  Lodging- 
house  Keepers  for  Loss  of  Baggage 97 

Section      70. — Lien  of  Hotel,  Boarding-house,  and  Lodging-house 

Keeper  on  Baggage  and  Other  Property 98 

Section  71. — Sale  of  Unclaimed  Baggage  by  Hotel,  Boarding- 
house,  and  Lodging-house  Keepers 98 

Section      72. — Statement  of  Charges,  etc.,  to  Be  Posted  by  Hotel, 

Boarding-house,  and  Lodging-house  Keepers 99 

Section    72a. — Defrauding  Hotel  Keepers  100 


•"^^  CONTENTS. 

LANDLORD   AND   TENANT 

PAGB 

Section      T^. — Leases  of  Real  Estate lOO 

Section      74. — For   What   Term   Leases   May   Be   Made   in   Cali- 
fornia      100 

Section      75. — When  Verbal  Lease  May  Be  Made loi 

Section      76. — When  Lease  Must  Be  in  Writing loi 

Section      yT. — Form  of  Lease   loi 

Section    77a. — Form  of  Lease  of  Agricultural  Lands 102 

Section    77b. — Assignment  of  Lease 104 

Section    77c. — Form  of  Assignment  of  Lease 104 

Section      78. — What  Repairs  Lessor  Must  Make. 105 

Section      79. — When  Lessee  May  Make  Repairs 105 

Section      80. — Termination  of  Lease   106 

Section      81. — Renewal  of  Lease  106 

Section      82. — Term  of  Hiring  When  No  Limit  Is  Fixed 107 

Section      83. — When  Rent  Is   Payable    107 

Section      84. — Notice  to  Quit  108 

(a) — Raising  the  Rent  109 

Section      85. — How  Notice  to  Quit  Must  Be  Served 109 

Section    85a. — Form  of  Notice  to  Quit  109 

Section    85b. — Form   of   Notice   to   Pay   Rent  or   Surrender   Pos- 
session    1 10 

Section      86. — Option  to  Purchase  in  Lease no 

Section    86a. — Form  of  Lease  of  Personal  Property in 

Section    86b. — Tenant  Must  Deliver  Notice  Served  on  Him 112 

Section      87. — Form  of  Farming  Lease  on  Shares 112 

SALE  OF  REAL  PROPERTY. 

Section    87a. — Transfer  by  Deed  1 14 

(a) — Condition  Against  Sale  of  Liquor 114 

Section    87b. — Deed  to  Community  Property 114 

Section    87c. — Deed  to  Separate  Property 115 

Section    87d. — Deed  of  Gift    115 

Section    87e. — Form  of  Deed  of  Gift  115 

Section     87f. — Bargain  and  Sale  Deed   117 

Section    87g. — Form  of  Bargain  and  Sale  Deed 117 

Section    87h. — Quitclaim  Deed   118 

Section     87i. — Form  of  Quitclaim  Deed  118 

Section     87J . — Warranty  Deed  119 

Section    87k. — Form  of  Warranty  Deed  120 

Section  87kk. — Corporation  Deed  121 

Section  87kkk. — Form  of  Corporation  Deed  and  Acknowledgment.  121 

Section     87I. — Deed  in  Escrow  123 

Section   87m. — Effect  of  Deed  in  Escrow 123 

Section    87n. — Deed  Cannot  Be  Cancelled 124 

Section  87nn. — Power  of  Attorney  to  Make  Deed 124 

INSTALLMENT  SALES  OF  REAL  ESTATE. 


Section    870. — Sales  on  the  Installment  Plan 125 

Section    87p. — Payment  of   Installments 126 

Section    87q. — ^Vendor's  Remedy  if  Installments  are  Not  Paid 126 


CONTENTS.  3CV 

PAGE 
Section    Sjr. — Purchaser's    Remedy    if    Vendor    Fails    to    Fulfill 

Contract    127 

Section    87s. — Form   of  Installment  Agreement  for   Sale  of  Real 

Estate    128 

EMPLOYER  AND  EMPLOYEE. 

Section      88. — Contract  of  Employment   129 

Section      89. — Obligations  of  the  Employer  130 

Section    89a. — Liability  for  Injury   131 

Section      90. — Obligations  of  the  Employee  132 

Section      91. — Termination  of  Employment  133 

Section    91a. — Sanitary  Condition  of  Workshops   134 

Section    91b. — Employment  of  Children   134 

Section    91c. — Employment  Agents   134 

MASTER  AND  SERVANT. 

Section      92. — Who  Is  a  Servant 135 

Section      93. — Term  of  Hiring 135 

Section      94. — When   Servant  May  Be  Discharged 136 

PRINCIPAL  AND  AGENT. 

Section  95. — Definition  of  Agency  136 

Section  96. — Kinds   of  Agency    137 

Section  97. — Authority  of  Agent   137 

Section  98. — What  Included  in  Authority  to  Sell  Personal  Prop- 
erty       137 

Section  99. — What  Included  in  Authority  to  Sell  Real  Estate 138 

Section  100. — Authority  of  Agent  to  Receive  Price  of  Property...   138 

Section  loi. — Agent's  Power  to  Disobey  Instructions 138 

Section  102. — Agent    Cannot   Have   Authority   to   Defraud.  Prin- 
cipal      139 

Section  103. — Agent's  Actual  Authority    140 

Section  104. — Agent's  Ostensible  Authority   140 

Section  105. — Ratification  of  Agent's  Acts   141 

Section  106. — How  Agency  Is  Created  142 

Section  107. — Mutual  Obligations  of  Principal  and  Third  Persons.   142 

Section  108. — Obligations  of  Agents  to  Third  Persons 144 

Section  109. — Agent's  Delegation  of  His  Power 144 

Section  1 10. — Termination  of  Agency  145 

WHOLESALER'S  AGENTS. 

Section  1 11. — Traveling   Agents    146 

Section  1 12. — Sale  by  Sample 146 

Section  113. — Purchaser's  Right  to  Return  Goods 146 

Section  114. — Collections   by  Traveling  Agent 146 

Section  115. — Giving  Credit  146 

Section  116. — Declarations  of  Wholesaler's  Agent 147 

Section  117. — Notice  to  Wholesaler's  Agent 147 

Section  118. — Failure  to  Ship  Goods 147 

Section  119. — Notice  by  Wholesaler  of  Termination  of  Agency..  147 

Section  120.— Wholesaler's  Repudiation  of  Agency 148 


xvl 


CONTENTS. 


Section 
Section 
Section 
Section 
Section 
Section 


Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 


Section 
Section 
Section 
Section 
Section 

Section 
Section 
Section 

Section 

Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 


MANUFACTURER'S   AGENTS.  „,„ 

PAGB 

121. — Manufacturer's  Agent  to  Buy  or  Sell 150 

122. — Agent's  Authority  to  Borrow  Money 151 

123. — Agent  Selling  Goods  Out  of  Manufacture 152 

124. — Selling  Goods  for  One  Year  Made  in  Another 153 

125. — Limitation  of  Authority  153 

126. — Sale  of  Property  When  Manufactured 153 

COMMISSION  MERCHANTS. 

127. — Selling  Property  on  Commission  153 

128. — Insurance  of  Consigned  Property 154 

129. — Authority  to  Sell  on  Credit 154 

130. — Pledge  of  Consigned  Property 154 

131. — Authority  of  Partner  or  Servant 154 

132. — Instructions   from  Consignor    154 

133. — Cannot  Extend  Credit  155 

134. — Guaranty  of  Certain  Price  , 155 

135. — Instructions  to  "Sell  on  Arrival" 155 

136. — Special  Propertj'  in  Consignments 156 

137. — In  Whose  Name  Insurance  May  Be  Put 156 

138. — Responsibility  of   Purchaser    156 

139. — Right  to  Commissions  156 

140. — May  Sell  in  His  Own  Name 157 

141. — Taking  Promissory  Note  in  Payment  157 

142. — Lien  of  Commission  Merchant 157 

143. — Authority  as   General   Agent 157 

144. — Care  to  be  Taken  of  Goods  Consigned 158 

145. — Must  Not  Mix  Goods  with  Another's 158 

146. — Duty  to  Render  Accounts  158 

REAL  ESTATE  AGENTS. 

147. — Employment  Must  Be  in  Writing 159 

148. — Verbal  Contract  Invalid  160 

149. — When  Letter  Not  Sufficient 160 

150. — Description  of  Land    161 

151. — Right    of    Agent    to    Commissions    When    Property 

Withdrawn  from  Sale   161 

152. — When  Contract  Fulfilled  and  Commission  Earned..   162 
153. — What  is  Sufficient  Authority  from  Corporation....   162 
154. — Ratification  of  Unauthorized  Employment  by   Cor- 
poration    164 

155. — Option  to  Agent  to  Sell  for  Commission  Above  a 

Fixed  Price   164 

156. — Failure  of  Sale  by  Defective  Title  l66 

157. — Failure  of  Owner  to  Remove  Defects  166 

158. — Ratifying  Authority  of  Brokers    167 

159.— What  Is  Good  Title 167 

160. — Sale  by  Owner    168 

161. — Commissions  Upon  Sale  or  Exchange  by  Owner....   168 

162. — Sale  by  Owner  Through  Another  Agent 168 

163. — Misrepresentation  by  Owner    169 

164. — What  Constitutes  a  Sale  by  Owner 169 

165. — Liability    of    Agent    Under    Contract    to    Sell    for 

Specified  Amount  170 


CONTENTS.  ^^" 

PAGE 

Section     i66. — Liability  of  Owner  to  Auctioneer  170 

Section     167. — What  Agent  Must  Prove  in  Suit  to  Recover  Com- 
missions     171 

Section     168. — Agent's  Mistake  as  to  Title   171 

Section     169. — Repudiation  of  Contract  by  Vendor 172 

Section     170. — Terms  of  Payment,  and  Refusal  to  Accept  Tender..   172 
Section     171. — Husband  Giving  Agent  Property  of  Wife  to  Sell...   173 

Section     172. — What  Constitutes  Finding  a  Purchaser 173 

Section     173. — Owner  and  Purchaser  Need  Not  Be  Brought  Face 

to  Face    174 

Section     174. — Amount  of  Commissions    174 

Section     175. — Prevention  of  Sale  by  Owner   174 

Section     176. — When  Purchaser  and  Owner  Are  Not  Brought  To- 
gether Purchaser  Must  Sign  a  Written  Contract  174 
Section     177. — When   Owner   Must   Return   Money   Paid  on   Con- 
tract       177 

Section     178. — Agreement     Between     Agents     to     Co-operate     in 

Selling    177 

Section     179. — Authority  to  Sell  on  Credit 178 

Section     180. — Power  of  Attorney  to  Agent  to  Make  Deed 178 

Section     181. — Risk  of  Purchaser  Who  Takes  Lawyer's  Advice  as 

to  Title    178 

Section     182. — Liability  of  Auctioneer  for  Deposit  at  Auction  Sale.   179 

Section     183. — Agent's  Knowledge  of  Title 179 

Section     184. — Interest  Allowed  by  Law  on  Agent's  Commission..    179 

Section     185. — How  Authority  of  Agent  Can  Be  Extended 179 

Section     186. — Costs  in  Suit  for  Commissions 179 

Section     187. — Commissions  Out  of  Purchase  Money 180 

Section     188. — Selling  Land  on  Shares   180 

Section     189. — Purchase  by  Agent  from  Himself   180 

Section     190. — Purchase  by  Agent  from  Principal  181 

Section     191. — Agent  Buying  in  His  Own  Name 182 

Section     192. — When  Authority  of  Agent  Revocable 182 

Section     193. — Which   One  of  Two  Brokers   Is  Entitled  to  Com- 
missions    182 

Section     194. — Authority  of  Agent  Making  Lease  for  Term  Longer 

Than  One  Year   - 182 

Section     195. — Death  of  Principal  Revokes  Authority  of  Agent. . .   183 
Section  195a. — Commissions    on    Sales    of    Real    Property    Under 

Order  of  Court  183 

Section  195b. — Personal  Property  Brokers  184 

FIRE  INSURANCE  CONTRACTS 

Section  196. — Contract  Between  the   Parties   184 

Section  197. — Designation   of   Parties 185 

Section  198. — Insurable  Interest   185 

Section  199. — Measure  of  Interest  in  Property 186 

Section  200. — When  Insurable  Interest  Must  Exist 186 

Section  201. — Insurance  Without   Interest   Illegal 187 

Section  202. — Wager  Policies  Void   187 

Section  203. — Duty  of  Parties  in  Making  the  Contract 188 

Section  204. — The  Policy  of  Insurance 189 

Section  205. — Open  and  Valued  Policies  190 

Section  206. — Running  Policy    190 


*^'"^  CONTENTS. 

PAGE 

Section    207. — Acknowledgment  in  Policy  of  Receipt  of  Premium . .   190 

Section    208. — Agreement  Not  to  Transfer 190 

Section    209. — Certain  Warranties  191 

Section    210. — What  Acts  Avoid  Policy 191 

Section    211. — Exoneration  of  Insurer  191 

Section  211a. — Proximate  and  Remote  Cause  of  Loss 191 

Section    212. — Notice  of  Loss  192 

Section    213. — Preliminary  Proofs  of  Loss 192 

Section    214. — Double  Insurance    193 

Section    215. — Alteration   Increasing  Risk   193 

Section    216. — Alteration  Which  Does  Not   Increase  Risk 193 

Section    217. — Verbal  Contract  to  Issue  Policy  193 

Section    218. — Certificate   of   Notary    194 

Section    219. — Falsity  of  Material  Representations  by  Insured 194 

Section    220. — Statements   as  to   Valuations 195 

Section    221. — Rights  of  Mortgagee — Effect  of   Sale  Under  Fore- 
closure       195 

Section    222. — Insurance     by     Commission     Merchant.  —  Incorrect 

Statement  as  to  Ownership   196 

Section    223. — Right  of  Arbitration   196 

Section    224. — Waiver  of  Proof  of  Loss  by  Arbitration 197 

Section    225. — Waiver  of  Condition  as  to  Prepayment  of  Premium  197 

Section    226. — Remedy  for  Unauthorized  Term  of  Credit 198 

Section    227. — Insurance  of  Unoccupied  Building 198 

Section    228. — Liability  of  Insurance   Company   for   Fires    Caused 

by  Earthquake  198 

Section    229. — Condition  as  to  Change  Occurring  in  Building 199 

Section    230. — Rules  for  Interpreting  Contract  of  Insurance 199 

Section    231. — Time  When  Policy  Takes  Effect 202 

Section    232. — Contract  of  Reinsurance — Effect  of  Prior  Loss 202 

Section    233. — Warranties    203 

Section    234. — Provision  as  to  Bringing  Suit 205 

Section    235. — Proofs  of  Loss  to  Reinsuring  Company 205 

Section    236. — Liability  of  Heir  for  Premium 205 

Section    237. — Insurance  on  Harvester  While  in  Use 206 

Section    238. — Liability  of   Company   on    Policy  Written  but   Not 

Delivered  Until  after  Fire '. 206 

Section  238a. — Standard  Form  of  Fire  Insurance  Policy 207 

Property  not  Covered  208 

Hazards  not  Covered 208 

Matters  Avoiding  Policy  209 

Matters  Suspending  Insurance 209 

Chattel  Mortgage  210 

Fallen  Building  Clause 210 

Removal  When  Endangered  by  Fire 210 

Cancellation    210 

Duty  of  Insured  in  Case  of  Loss 211 

Ascertainment  of  Amount  of  Loss 212 

Options  of  Company  in  Case  of  Loss 213 

Apportionment  of  Loss   213 

Loss  When  Payable 213 

Non-waiver  by  Appraisal  of  Examination 213 

Subrogation    213 

Time  for  Commencement  of  Action 214 

Definitions    214 


CONTENTS. 


FIRE  INSURANCE  AGENTS. 

PAGE 

Section  239. — Appointment  and  Authority  of  Agents 215 

Section  240. — Brokers   or   Agents    215 

Section  241. — Agent  Waiving  Forfeiture 216 

Section  242. — Authority  of  Local  Agent   217 

Section  243. — Ostensible  General  Power  of  Local  Agent 217 

Section  244. — Knowledge   of   Agent    Is   the   Knowledge   of   Com- 
pany   217 

Section  245. — Oral  Waiver  of  Indorsement  by  Local  Agent 218 

Section  246. — Application  Made  Out  by  Agent  of  Company 218 

Section  247. — Fraud  of  Agent. — Disobedience  of  Instructions 219 

Section  248. — Waiver  of  Petroleum  Clause  by  Agent 219 

Section  249. — Waiver  Continues  during  Renewal  of  Policy 219 

Section  250. — Authority  of   Special   Agent 220 

Section  251. — Oral  Promise  of  Policy  220 

Section  252. — Agent's  Knowledge  of  Former  Insurance 220 

Section  253. — Offer  to  Renew  Policy 220 

Section  254. — Unauthorized  Contract  of  Local  Agent 221 

Section  255. — Waiver  from  Knowledge  of  Agent 221 

LIFE  INSURANCE. 

Section    255a. — Insurable  Interest 222 

Section    25Sb. — Creditor's   Interest    223 

Section    255c. — Delivery  of  Policy 223 

Section    25Sd. — Place  of  Contract 224 

Section    255e. — Interpretation  of  Policy 224 

Section     255f. — Conditions  in  Policy  225 

Section    2SSg. — Waiver  of  Conditions 225 

Section    255h. — Representations  by  Insured  226 

Section     255i. — Effect  of  Disease  of  Applicant  on  Policy 226 

Section     255 j. — Meaning  of  "Good  Health" 227 

Section    255IC. — ^Malt  and  Spirituous  Beverages 227 

Section     2S5I. — Payment  of  Premiums    227 

Section    2S5m. — Credit  for  Premiums  228 

Section    255n. — Forfeiture  for  Non-Payment  of  Premium 228 

Section    2550. — Revival  of  Forfeited  Policy 228 

Section    255p. — Proof  of  Death  228 

Section    255q. — Suicide    229 

Section     255r. — Assignment  of  Policy 229 

Section     255s. — Beneficiaries  of  Life  Insurance  230 

Section     2S5t. — Deduction  of  Unpaid  Premiums 230 

LIFE  INSURANCE  AGENTS. 

Section    25Su. — Principles  of  Agency  231 

ACCIDENT  INSURANCE. 

Section    255V. — TJie   Policy    231 

Section   25SW. — Definition  of  Accident  231 

Section    255x.-T-Death  by  Accidental  Means 232 

Section    255y. — Hanging  One's  Self  While  Insane 232 

Section     2557. — Being  Killed  by  Robbers 232 


"  CONTENTS. 

PAGE 

Section  25533. — Death  by  Drowning  233 

Section  255bb. — Death  from  Fright  233 

Section  255CC. — Death  by   Falling    233 

Section  255dd. — Taking  Poison  by  Mistake 233 

Section  255ee. — Death  by  Murder   234 

Section   255ff. — Death  by  Inhaling  Gas 234 

Section  255gg. — Loss  of  Hand   234 

Section  255hh. — Loss  of  Feet   234 

Section    255ii. — Loss  of  Business ". 234 

Section    255JJ. — Total   Disability    235 

Section  255kk. — "Disease"   and   "Bodily   Infirmity" 235 

Section    255II. — Disease  Produced  by  Known  Cause 235 

Section  255mm. — Condition  against  Change  of  Occupation 235 

Section  255nn. — Voluntary  Exposure  to  Danger  236 

Section  25500. — Proof  of  Injury  or  Death 236 


ACCIDENT  INSURANCE  AGENTS. 
Section  255pp. — Principles  of  Agency  236 

MARINE  INSURANCE. 

Section  255qq. — The   Policy    237 

Section   255rr. — Definition  of  Marine  Insurance  237 

Section   255SS. — Insurable    Interest    22,7 

Section   255tt. — Perils  of  the  Sea 238 

Section  255UU. — Duty  of  Parties 239 

(a) — Presumption  of  Knowledge  of  Loss 239 

(b) — Concealments    Which    only    Affect    the    Risk    in 

Question   239 

(c) — Effect   of   Intentional   False   Representations 239 

Section  255VV. — Warranty  of  Seaworthiness   240 

(a) — Seaworthiness  Defined  240 

(b) — Different  Degrees   of   Seaworthiness  at  Different 

Stages  of  the  Voyage 240 

(c) — Delay  in   Making  Repairs 240 

(d) — Seaworthiness  for  Cargo  240 

(e) — Neutral   Papers    241 

(f  ) — At  What  Time  Seaworthiness  Must  Exist 241 

Section  255WW. — Deviation  from  Voyage 241 

(a) — What  Constitutes  Deviation 242 

(b) — Deviation  Exonerates  the  Insured 242 

Section  255XX. — Total  and  Partial  Loss 242 

(a) — Actual  Total  Loss 243 

(b) — Constructive  Total  Loss  243 

(c) — Insurance  Against  Total  Loss  243 

(d) — Liability  of  Insurer  When  Voyage  is  Broken  Up.  243 

Section  255yy. — Abandonment 244 

(a) — Refusal  to  Accept 245 

(b) — Waiver  of  Formal  Abandonment 245 

(c) — Omission  to  Abandon   245 

(d) — Notice  of  Abandonment  245 


CONTENTS.  ^^ 

PAGE 

Section    255ZZ. — Measure   of   Indemnity 246 

(a) — Partial  Loss 246 

(b)— Profits    246 

(c) — Valuation  Apportioned 246 

(d) — Valuation  Applied  to  Profits 246 

(e) — Estimating  Loss  Under  an  Open  Policy 246 

(f)-^Arrival  of  Cargo  Damaged 247 

(g)  — Labor  and  Expenses 247 

(h) — One-third  New  for  Old 247 

Section  255aaa. — General  Average 248 

Section  255bbb. — Perishable  Goods 249 

Section  255CCC. — Acts  of  Master  and  Crew 249 


MARINE  INSURANCE  AGENTS. 
Section  255ddd. — Principles  of  Agency 


250 


BUILDING  CONTRACTS. 

Section    256. — Contract  Must  Be  in  Writing 250 

Section    257. — Contract  or  Memorandum  to  be  Recorded 250 

Section     258. — Recorder's  Fee  '. 251 

Section    259. — Time  of  Payments 251 

Section    260. — Last  Payment  251 

Section    261. — Contractor's  Bond  252 

Section    262. — Materials   Furnished   Contractor  Exempt  from  Ex- 
ecution      252 

Section    263. — Form  of  Builder's  Contract 253 

Section    264. — Reference  to  Plans  and  Specifications  in  Contract. .  258 

Section    265. — When  Contract  Wholly  Void 258 

Section    266. — Defects  Which  Will  Not  Make  Contract  Void 258 

Section     267. — Twenty-five  Per  Cent  Reserved 259 

Section    268. — Building  Contract  Where   Price  Does  Not  Exceed 

One   Thousand    Dollars 259 

Section    269. — Contract  of  Minor 260 

Section    270. — Price  Where  Contractor  Abandons  the  Work 260 

Section    271. — Owner  Preventing  Work 260 

Section    272. — Notice  to  Owner 260 

Section    273. — Acceptance  by  Agent 261 

Section    274. — Breach  of  Contract  by  Owner 261 

Section    275. — Agreement  as  to  Extra  Work 261 

Section    276. — Loss  by  Fire  before  Completion 261 

Section    277. — Contract  Providing  for  Arbitration 262 

Section    278. — Suit  for  Reasonable  Value  of  Work  and  Materials..  263 

Section    279. — Invalid  Memorandum  263 

Section    280. — Substantial  Performance  264 

Section    281. — Owner    Not    Liable    for    Damages    on    Unrecorded 

Contract  265 

Section    282. — Right  of  Contractor  to  Abandon  Work 265 

Section    283. — Material  Departure  from  Specifications 266 

Section     284. — Excavations  266 

Section  284a. — Unsafe  Scaffolding,  Ladders,  etc 267 

Section  284b. — Temporary  Flooring  for  Protection  of  Workmen . .  268 


xzii 


CONTENTS. 


MECHANICS  LIENS. 

PAGE 

Section    285. — The  Persons  Entitled  to  Liens 269 

Section    286. — To   What    Lien    Extends 269 

Section    287. — Advance  Payments  Do  Not  Affect  Lien 269 

Section    288. — Alteration  of  Contract  Does  Not  Affect -Lien 270 

Section    289. — Notice  to  Reputed  Owner 270 

Section    290. — What  Interest  in  the  Land  Subject  to  the  Lien....  271 

Section    291. — Effect  of  Mechanic's  Lien 271 

Section    292. — Owner's  Notice  of  Completion 271 

Section    293. — Effect  of  Failure  to  File  Owner's  Notice 272 

Section    294. — Fee  for  Recording  Owner's  Notice 272 

Section    295. — Time  within  Which  Original  Contractor  May  File 

Lien 272 

Section    296.— ^Time    within    Which    Mechanic,    Material-man,    or 

Laborer  May  File  Lien 272 

Section    297. — Time  within  Which  Miner  May  File  Lien 273 

Section    298. — Claim  of  Lien  to  be  Filed  in  Recorder's  Office....  273 
Section    299. — Occupation  or  Use  of  Building  Equivalent  to  Com- 
pletion    273 

Section    300. — Liens  upon  Two  or  More  Pieces  of  Property 274 

Section    301. — When  Suit  Must  Be  Commenced  to  Foreclose  Lien.  274 
Section    302. — Liens  on  Lots  in  .Incorporated  Cities  and  Towns. . . .  274 
Section    303. — Notice  by  Owner  That  He  Will  Not  Be  Respon- 
sible    275 

Section    304. — Measure  of  Recovery  by  Contractor 275 

Section    305. — Contractor    Must    Defend    Suits    on    Liens    at    His 

Own  Expense    276 

Section    306. — Order  in  Which  Liens  Apply 276 

Section    307. — Lien  May  Be  Waived  and  Personal  Action  Brought  277 
Section    308. — What  Is  Applied  to  Liens  When  Contractor  Aban- 
dons the  Work   277 

Section    309. — False    Claims    277 

Section    310. — Conspiracy  Between  Owner  and  Contractor 278 

Section    311. — Building    Constructed    under    Distinct    Contracts — 

Who  Is  Original  Contractor 278 

312. — Allowance  of  Interest   279 

313. — Attorney's    Fees    279 

314. — When   Lien   for   Materials   Begins 280 

315. — Partnership   Claim    280 

316. — When  Contractor  Not  Entitled  to  Lien 280 

317. — Deduction  by  Owner  of  Amount  of  Foreclosed  Lien  280 

318. — Lien  for  Moving  a  House 281 

319. — Lien    on    Homestead 281 

320. — Notice  by    Material-man'  to   Trustees   of   State    In- 
stitution      281 

Section    321. — Lien  against  Railroad 281 

Section    322. — Abandonment  and  New  Contract 282 

Section    323. — Time  of  Filing  Claims  of  Sub-contractors 282 

Section    324. — Liens  on   Mining  Claims 282 

Section    325. — Miner's  Lien  Must  Be  upon  the  Whole  Claim 283 

Section    326. — No  Lien  against  a  Public  Building 284 

Section    327. — Right  of  Material-man  to  Give  Notice 285 

Section    328. — Elevator  Part  of  Building 285 


Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 


CONTENTS.  30111 

PAGE 

Section    329. — Description    of    Mining    Claim 285 

Section    330. — Dwelling-house — Land  Subject  to  Lien 286 

Section    331. — Contractor    and    Owner    Cannot    Take    Away    Ma- 
terial-man's  Lien    286 

Section    332. — What  Is  Meant  by  Owner 287 

Section    333. — Real  or   Reputed   Owner 287 

Section    335. — Duty    of    Owner    upon    Receiving    Notice    of    Ma- 
terial-man's Claim   288 

Section    336. — Priority  of  Material-man's  Claim  over  Mortgage 288 

Section    337. — Mining  Ground — Patented  Land 288 

Section    338. — Appointment   of   Painter   as    Keeper 289 

Section    339. — Materials  Must  Be  Expressly  Furnished  for  Struc- 
ture  Charged   With   Lien 289 

Section    340. — Assignment  of  Mechanic's  Lien 289 

Section  340a. — If    Building    Is    Destroyed   by   Fire    No   Lien    Can 

Afterwards  Be  Filed 289 

Section  340b. — Lien   for   Power   Supplied 290 

Section  340c. — Lien  for  Work  Done  by  Order  of  Health  Officer...  290 


ARCHITECTS. 


Section  341 

Section  342 

Section  343 

Section  344 

Section  345 

Section  346 

Section  347 

Section  348, 

Section  349 

Section  350, 

Section  351 

Section  352 

Section  353 

Section  354, 


-Compensation  of  Architect 291 

-Architect's    Lien    291 

-Architect  Cannot  File  Lien  against  Public  Building.  292 
-Architect  Has  No  Lien  against  Monument  in  Pub- 
lic Park  293 

-Payments   Made  on  Architect's   Certificate 293 

-Architect's  Certificate  as  to  Liens 294 

-Condition    as    to    Certificate    May    Be    Waived    by 

Owner    294 

-Architect's  Plans  Part  of  Contract 294 

-Contract  Void  for  Failure  to  Record  Specifications  294 

-Services    of   Architect 295 

-Liability  of  Architect  for  Negligence 295 

-Contract  for  Percentage  on  Cost  of  Building 296 

-Liability  for  Disclosing  Intention  of  Owner 296 

-Time  Spent  on  Plans  and  Specifications ' 297 


LIENS  FOR  SALARY  AND  WAGES. 

Section    355. — Preferred    Claims    for    Salary   and   Wages 297 

Section    356. — Preferred  Claims  for  Wages  and   Salaries  Against 

Estates     297 

Section    357. — Wages   and    Salaries    in    Case   of   Attachment   and 

Execution    298 


VENDOR'S  LIEN. 


Section  358. — Lien  of  Seller  of  Real  Property 298 

Section  359. — When  Transfer  of  Contract  Waives  Vendor's  Lien..  299 

Section  360. — Extent   of   Vendor's    Lien 299 

Section  361. — Lien  of  Seller  of  Personal  Property 299 


zzlv 


CONTENTS. 


Section  362. 

Section  363. 

Section  363a. 

Section  364. 

Section  365.- 

Section  366.- 

Section  366a.- 

Section  367.- 


Section  368 

Section  369 

Section  370 

Section  371 

Section  2>7'^ 

Section  2>7Z 

Section  374 


LIENS  ON  PERSONAL  PROPERTY. 

PAGE 

-Lien    for    Services    300 

-Lien  of  Livery   Stable   Proprietors 300 

-Defrauding   Livery   Stable   Keepers 301 

-Lien  for  Pasturing  Horses  or  Stock 301 

-Lien  of  Laundry  Proprietors 302 

-Lien  for  Repairing  Personal  Property 302 

-Sale  of  Property 303 

-Officer's  Lien    303 

LOGGER'S  LIEN. 

-Lien  for  Labor  on  Logs  and  Lumber 303 

-Claim  of  Lien  to  be  Filed  for  Record 304 

-When  Suit  Must  Be  Commenced  to  Foreclose  Lien  304 

-Attachment    as    Further    Security 304 

-Undertaking  on  Attachment 305 

-Extent  of  the   Lien 305 

-Attachment  Not  Necessary  to  Hold  Lien 305 


LIENS  OF  PERSONS   WORKING  ON  THRESHING- 
MACHINES. 


Section  375 

Section  376 

Section  2)77 

Section  378 

Section  379 

Section  380 


— Persons   Entitled  to   the   Lien 305 

— Extent    of    Lien     305 

— Suit  Must  Be  Commenced  within  Ten  Days.. 306 

— Proceeds    of    Sale    Distributed    Pfo   Rata 306 

— No    Notice    Required 306 

— Lien    Is    Assignable 306 


LIENS  IN  FAVOR  OF  OWNERS  OF  STALLIONS, 
JACKS,   AND  BULLS. 

Section     381. — Persons  Entitled  to  the  Lien 306 

Section    382. — Claim  to  be  Filed 307 

Section     383. — Notice    to    Subsequent    Purchasers 307 

Section    384. — False  Representations  Invalidate  Lien 307 

Section    385. — Suits   to    Foreclose 307 

Section    386. — Attachment   as    Security 307 


DAMAGES  FOR  BREACH  OF  CONTRACT. 


Section  387 

Section  388 

Section  389 

Section  390 

Section  391 

Section  392 

Section  393 

Section  394 

Section  395 

Section  396 

Section  397 


-Measure  of  Damages 308 

-Breach  of  Contract  to  Pay  Money 308 

-Breach   of   Warranty   of   Title 308 

-Damages  in  Case  of  Exchange  of  Lands 309 

-Breach  of  Agreement  to  Convey  Real  Property 309 

-Breach  of  Agreement  to  Buy  Real  Property 309 

-Breach  of  Warranty  of  Title  to  Personal   Property  309 
-Damages    for    Breach    of   Warranty   of    Quality   of 

Personal  Property   310 

-Breach  of  Warranty  for  Special  Purpose 310 

-Damages  for  Breach  of  Carrier's  Obligations 310 

-Damages  for  Breach  of  Other  Contracts 311 


CONTENTS. 


Section  398.- 

Section  399.- 

Section  400.- 

Section  401.- 

Section  402.- 

Section  403.- 

Section  404.- 


Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 

Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
S'ection 
Section 


405-- 
406.- 
407.- 
408.- 
409.- 
410.- 
411.- 
412.- 

4I3-- 
414.- 

415-- 

416.- 

417.- 
418.- 
419.- 
420.- 
421.- 
422.- 

423.- 

424.- 

425-- 
426.- 
427.- 
428.- 


Section  429.- 

Section  430.- 

Section  431.- 

Section  432.- 

Section  433.- 

Section  434.- 

Section  435.- 

Section  435a.- 


Section  436.- 

Section  437.- 

Section  438.- 

Section  439.- 

Section  440.- 

Section  441.- 

Section  442.- 


PARTNERSHIP. 

PAGE 

-What   Constitutes  a   Partnership 311 

-Formation    of    Partnership 312 

-Partnership  Property  313 

-Partner's  Interest  in  Partnership  Property 313 

-Possession    of    Partnership    Property 313 

-Partner's  Share  in  Profits  and  Losses 314 

-AppHcation    of    Partnership    Property    to    Payment 

of  Debts    315 

-What  Is   Partnership   Property 315 

-Mutual  ObHgations  of   Partners 316 

-Liability   of    Partners   to   Account 317 

-Compensation  for   Services  to  Firm 318 

-Renunciation    of    Partnership 318 

-Power    of    Majority   of    Partners 319 

-Authority   of   Individual    Partner 319 

-What    Partner    Cannot    Do 321 

-Partner  Engaging  in  Other  Business 321 

-General   Liability  of   Partner ^^2 

-Liability  of  One  Who  Permits  Himself  to  be  Held 

Out  as  a  Partner    ;i22 

-Doing  Business  Under  Fictitious   Name 322 

-Special  Partnerships  323 

-Certified    Statement  of   Special   Partnership 323 

-Special    Partnership. — Liability  of  the    Partners....  324 

-Rights    of    Special    Partners 324 

-Interest  and  Profits  of  Special  Partner 325 

-Mining   Partnerships    325 

-Profits  and  Losses  in  Mining  Partnership 326 

-Liability    of    Mining    Partners 326 

-Mining   Ground    Partnership    Property 326 

-New  Member  of  Mining  Partnership 327 

-Contract    in    Writing 328 

-Owners  of  Majority  of  Shares  Govern  Conduct  of 

Mine   ' 328 

-Duration    of    Partnership 328 

-Total  Dissolution  of  Partnership 329 

-Partial   Dissolution   of    Partnership 329 

-When  Partner  Entitled  to  Dissolution 329 

-Notice  of  Dissolution  of  Partnership 335 

-Winding  up   the    Partnership   Affairs 336 

-Rights    of    Partners    After    Dissolution 336 

-Form  of   Partnership   Agreement 337 

SURVEYS  OF  LAND. 

-Public  and  Private  Land  Surveys 339 

-Government  Surveys   339 

-Government    Survey    Accepted    and    Approved    Is 

Fixed  and  Unchangeable 340 

-Finding  Original  Location  of  Township  Line 340 

-Field   Notes    and    Maps 341 

-Monuments   on   the   Ground 341 

-Townships    342 


CONTENTS. 

PAGE 

-Sections  343 

-Subdivisions    of    Sections 343 

-Principal   Meridians   and   Base   Lines 343 

-Ranges    344 

-Standard  Corners   344 

-Closing    Corners     344 

-Township   Corners    345 

-Section  Corners  346 

-Quarter   Section  Corners 347 

-Meander  Corners  348 

-Government   Lines   and   Corners    Must   Control....  348 

-Restoring    Lost    Corners 349 

-Perpetuating   Corners    350 

-Proportionate    Measurements    351 

-Instructions  from  the  General  Land  Office 351 

-Manual   of  United    States    Surveying 353 

-Where   Surveyor   Should   Start 354 

-Monuments  Control  Courses  and  Distances 354 

-Completion   of   United    States    Survey 354 

-AppHcation  to  Purchase  School  Land 355 

SPAULDING'S   TABLE   FOR    MEASUREMENT    OF   LOGS. 

-Legal  Standard  of  Log  Measurement 355 

-Explanation  of  Table 359 

SEARCHERS  OF  RECORD.. 

-Abstracts    of    Title 360 

-Searchers  of  Record    360 

-Liability   of    Searchers    of    Record 361 

-To    Whom    Liable    361 

-Liability    for    Mistake 362 

-Liability    for    Omitting    Encumbrance 362 

-Marginal  Reference  in  Record  Book 362 

-Omitting  Judgment  and  Sale 363 

-Incorrect  Report  of  Quantity  of  Land  Conveyed. . . .  364 

-Measure    of    Damages 364 

-When  Suit  for  Damages  Must  Be  Commenced....  364 

-Sale  of  Good-Will  of  Abstracting  Business 364 

NOTARY  PUBLIC. 

-Duties  of  Notary 364 

-Bond  of   Notary 365 

-Liability   of    Notary 365 

-What  Acts  Covered  by  Official  Bond 365 

-LiabiHty  of  Sureties  on  Official  Bond 366 

-Premature    Protest   of   Promissory   Note 366 

-False   Certificate   to   Acknow^ledgment 367 

-Notary  Cannot  Amend  Certificate 368 

-Notary's    Knowledge   of   Party   Acknowledging   In- 
strument   368 

-Party    Introduced   to   Notary 370 

-Misappropriation  of  Moneys 370 

-Fees    of    Notary 371 


Section 

44,3.- 

Section 

444- 

Section 

445-- 

Section 

446.- 

Section 

447-- 

Section 

448. 

Section 

449- 

Section 

4.S0.- 

Section 

451.- 

Section 

452.- 

Section 

453-- 

Section 

454-- 

Section 

4.S4a.- 

Section 

455-- 

Section 

4=^6.- 

Section 

4=i7.- 

Section 

4S8.- 

Section 

450.- 

Section 

460.- 

Section 

CP  AT 

461.- 

TT  -rvT 

Section  461a.- 

Section 

461b.- 

Section 

506.- 

Section 

507-- 

Section 

^08.- 

Section 

509.- 

Section 

600.- 

Section 

601.- 

Section 

602.- 

Section 

603.- 

Section 

604.- 

Section 

605.- 

Section 

606.- 

Section 

607.- 

Section 

608.- 

Section 

609.- 

Section 

610.- 

Section 

611.- 

Section 

612.- 

Section 

6n.- 

Section 

614.- 

Section 

615.- 

Section 

616.- 

Section 

617.- 

Section 

618.- 

Section 

619.- 

CONTENTS.  xxvu 

CARRIERS  OF  FREIGHT. 

PAGE 

Section    620. — Freight   and   Freightage 371 

Section    621. — Care  and  Diligence  Required  of  Carriers 371 

Section     622. — Directions  to  Carriers 372 

Section     623. — Delivery  of   Freight 372 

Section    624. — Obligations    of    Carrier    When    Freight    Not    De- 
livered      372 

Section    625. — Bill    of    Lading 373 

Section     626. — Number    of    Bills    of    Lading 374 

Section    627. — Carrier    Exonerated    by    Delivery 374 

Section    628. — When  Freight  Must  Be  Paid 374 

(a) — Carrier's   Lien    27S. 

Section    629. — Who  Must  Pay  Freight   375 

Section    630. — Freight   Carried  Farther  Than  Agreed 375 

Section    631. — Obligation   to   Accept    Freight 376 

Section    632. — Agreements  to  Limit  Liability 376 

Section    633. — General  Liability  of  Common  Carriers  for  Loss....  377 

Section  633a. — Losses    Not    Waived    by    Contract 378 

Section     634. — Liability    for    Delay 378 

Section    635. — Shipment  of  Gold,   Precious   Stones,  Statuary,  Pic- 
tures, Glass  or  Chinaware 378 

Section    636. — Accepting  Freight  for  Place  Beyond  Usual  Route . .  379 
Section  636a. — Railroads    Must    Furnish    Cars 379 

LETTERS  OF  CREDIT. 

Section  637. — What  Is  a  Letter  of  Credit '. 380 

Section  638. — How  Addressed  380 

Section  639. — Letters    General   or    Special 380 

Section  640. — Liability   of   the   Writer 381 

Section  641. — Letter  of  Credit  May  Be  a  Continuing  Guaranty. .  381 

Section  642. — When  Notice  to  the  Writer  Necessary 381 

Section  643. — Credit  Given  Must  Agree  with  Terms  of  Letter 381 

Section  644. — Intention    of    Parties 382 

BILLS  OF  EXCHANGE. 


Section  645 

Section  646 

Section  647 

Section  648 

Section  649, 

Section  650 

Section  651 

Section  652 

Section  653 

Section  654 

Section  655 

Section  656 

Section  657, 

Section  658. 


-Nature  of  Bills  of  Exchange 382 

-Bill  in  Parts  of  a  Set 383 

-Where  Bill  of  Exchange  is  Payable 383 

-When    Bill    of    Exchange    May    Be    Presented    for 

Acceptance    383 

-How  Presentment  Must  Be  Made 383 

-Acceptance  Must  Be  in  Writing 384 

-What   May  Be  Treated   as   Sufficient   Acceptance..  384 

-When  Acceptance  May  Be  Canceled 385 

-What  Is  Admitted  by  Acceptance 385 

-Acceptance  or  Payment  for  Honor 385 

-Presentment  for  Payment 386 

-Foreign  Bills  387 

-Protest  of  Foreign  Bill  of  Exchange 387 

-Damages    Allowed    on    Dishonor    of    Bill    of    Ex- 
change      388 


"^1  CONTENTS. 

BANK  CHECKS. 

PAGE 

Section  658a. — Nature   of   Bank   Checks 389 

Section  658b. — Delivery  of   Check 389 

Section  658c. — Negotiability    390 

Section  658d. — Possession    of    Check 390 

Section  6586. — Drawing  of  Anticipated  Funds 390 

Section  658f. — Certified    Check    390 

Section  658g. — Presentment  and   Denjand  for   Payment 390 

Section  658h. — Stopping  Payment 391 

Section   6581. — Payment   of    Check   by    Mistake 391 

Section   658J. — Rights   and   Liabilities   of   Indorsers 392 

Section  658k. — Refusal  to  Pay 392 

Section   658I. — Liability  of  Bank  to  Depositor  for  Refusal  to  Pay 

Checks    392 

Section  658m. — Forged   Checks    393 

Section  658n. — Forged    Indorsements    394 

Section  6580. — Garnishment  of  Money  on  Deposit 394 

Section  658p. — Liability  of  Bank  for  Payment  of  Check  after  Death 

of  Drawer    395 

Section  658q. — Drawing  Check  With  Intent  to  Defraud 395 

ASSIGNMENT  FOR  BENEFIT  OF  CREDITORS. 

Section  659. — Assignment    by    Insolvent    Debtor 396 

Section  660. — What   Is    Insolvency    397 

Section  661. — Void   Assignment    398 

Section  662. — Inventory  to  be   Made  by  Debtor 398 

Section  663. — Failure  to   File  Inventory 399 

Section  664. — Effect  of  Failure  to  Record  Assignment 399 

Section  665. — Bond    of    Assignee 399 

Section  666. — Accounting    by    Assignee 400 

Section  667. — Property   Exempt  from   Assignment 400 

Section  668. — Compensation   of   Assignee 400 

Section  669. — Assignee  Protected  for  Acts  Done  in  Good  Faith..  400 

Section  670. — Assignment    Not    Revocable 401 

Section  671. — Creditor's   Claims    401 

Section  672. — Creditor    Holding    Mortgage    or    Pledge 401 


PART   II 


Collection  of  Bills  and  Accounts 


Section  673 

Section  674 

Section  675 

Section  676. 

Section  677 

Section  678 

Section  679 

Section  680 

Section  681 

Section  682 


-Methods    of    Making    Collections 403 

-Presentment  of  Bills  or  Statements  of  Account....  403 

-Itemized  Account    403 

-Open  and  Current   Account 403 

-When   Open   Account    Outlaws 404 

-Mutual   Account    404 

-When    Mutual    Account    Outlaws 405 

-Stated    Account 405 

-When  Stated  Account  Outlaws 405 

-Interest  on   Stated  Account 406 


CONTENTS.  ^^^ 

PAGE 

Section    683. — Assignment    for    Collection 406 

Section    684. — Assignee  May  Sue  in  His  Own  Name 406 

Section    685. — Assignment  May  Be  Verbal  or  Written 407 

Section    686. — Assignment    by    One    Partner    of    Partnership    Ac- 
count    407 

Section    687. — Collection  of  Accounts  When  Books  Are  Lost....  407 
Section    688. — What   Debtor    May   Set   Off  against   Assigned  Ac- 
count    408 

Section    689. — Authority  of  Agent  in  Making  Collections 408 

Section    690. — Ratification  of  Agent's  Acts 408 

Section    6gi. — Agent's    Commissions    upon    Collections 409 

Section    692. — Collection    of    Bills    and    Accounts    When    Debtor 

Is    Dead    409 

Section    693. — Suit  in  Justice  Court  on  Bills  and  Accounts 409 

Section    694. — In  What  Township  Suit  Must  Be  Brought 410 

Section    695. — Suit  in  Superior  Court  on  Bills  and  Accounts 410 

Section    696. — In  What  County  Suit  in  Superior  Court  Must  Be 

Brought   410 

Section    697. — Attachment  of  Debtor's  Property  in  Suit  to  Collect 

Account     411 

Section    698. — Means  for  Collection  to  be  Employed  by  Agent....  411 

Section    699. — Payment  to  Wife  of  Creditor 411 

Section    700. — Payment  of  Note  to  Supposed  Agent 411 

Section    701. — Taking  Goods   for  Creditor's   Claims 411 

Section     702. — Accepting   Promissory  Note 412 

Section    703. — Collection  of  Notes  by  Agent 412 


PART   III 

Notes  and  Mortgages 

PROMISSORY  NOTES. 

Section    704. — What   Is   a    Promissory   Note 4^3 

Section    705. — Who    May    Be    Parties 413 

Section    706. — Note  Made  by  Minor 414 

Section    707. — Note    Made    to    Minor .415. 

Section    708. — Note   Made  by   Married   Woman 415 

Section    709. — Note    Made   to    Married   Woman 416 

Section    710. — Note    Made    by    Corporation 416 

Section    711. — Note    Made    to    Corporation 419 

Section    712. — Note  Must  Be  in  Writing 419 

Section    713. — Note   May   Be   in   Pencil 419 

Section    714.— Must  Be  for  the  Payment  of  Money 419 

Section    715. — Must  Be  for  a  Certain  Specified  Amount 420 

Section    716.— Must   Not  Be   Subject  to   Any  Condition  or   Con- 
tingency     420 

Section    717. — Form    of    Note 420 

Section    718. — Time  of  Payment ' 421 

Section    719. — Place  of  Payment 422 

Section    720. — Date  of  Note 422 

Section    721.— Note   Not  Dated   Is   Valid 422 

Section    722.— How  Must  Be  Signed  by  Maker 423 

Section     723. — Form  of  Note  Signed  with  an  X 423 

Section    724.— Maker's    Name    Spelled    Wrong 423 


"*  CONTENTS. 

PAGE 

Section    725. — Name  of  Person  to  Whom  Note  Is  Payable 423 

Section    726. — Note  Payable  on  or  before  a  Certain  Date 424 

Section    727. — Form    of    Note    Payable    on    or   before    a    Certain 

Date    424 

Section    728. — Note  with  Payee  Blank 424 

Section    729. — Note  Payable  to  Order  of  Maker 425 

Section     730. — When    Note    Is   Negotiable 425 

Section    731. — When    Note    Is    Not    Negotiable 425 

Section    732. — Difference  between  Negotiable  Note  and  Note  Not 

Negotiable  425 

Section    733. — Joint    Note 426 

Section     734. — Form  of  Joint  Note 427 

Section    735. — Liability    on    Joint    Note 427 

Section     736. — Joint   and    Several   Note 427 

Section    ^tH- — Form  of  Joint  and  Several  Note 427 

Section    738. — Liability  of  Makers  of  Joint  and  Several  Note. . . .  428 

Section    739. — Interest    428 

Section    740. — Legal  Rate  of  Interest 429 

Section    741. — Attorney   Fees    429 

Section    742. — When  Note  Is  Outlawed 429 

Section  742a. — Apparent  Maturity  of  Note 430 

Section    743. — When  Outlawed  Note  Is  Renewed 430 

Section    744. — Indorsement    of    Negotiable    Note 431 

Section    745. — Kinds  of  Indorsements 432 

Section    746. — General  Indorsement   432 

Section    747. — Special  Indorsement  432 

Section  747a. — Indorser   of    Non-negotiable    Note 432 

Section     748. — Assignment  of  Note  Not  Negotiable 433 

Section    749. — Liability  of   Indorsers 433 

Section    750. — Indorsement    "without    Recourse" 434 

Section    751. — Rights  of  Indorsee  in  Due  Course  of  Business 434 

Section     752. — When  Note  Must  Be  Presented  for  Payment 435 

Section    753. — By  Whom  Note  Must  Be  Presented  for  Payment. .  435 
Section     754. — To  Whom  Note  Must  Be  Presented  for  Payment. .  436 
Section    755. — At  What  Place  Note  Must  Be  Presented  for  Pay- 
ment      436 

Section    756. — What  Will  Excuse   Presentment  for  Payment 436 

Section    757. — What  Is   Reasonable   Diligence 437 

Section    758. — When  a  Note  Is  Dishonored 438 

Section    759. — Notice  of  Dishonor 438 

Section    760. — How  Notice  of  Dishonor  May  Be  Given 438 

Section    761. — When  Notice  of  Dishonor  Must  Be  Given 439 

Section    762. — Form  of  Notice  of  Dishonor 439 

Section    763. — When  Notice  of  Dishonor  Is  Excused 440 

Section    764. — Protest    of    Foreign    Note 440 

Section    765. — When  Suit  to  Collect  Note  Can  Be  Brought 440 

Section     766. — In    What    Court    Suit    to    Collect    Note    Must    Be 

Brought    441 

MORTGAGES. 


Section    767. — Mortgage   Security    441 

Section    768. — What    Interest   in   Real   Property   May   Be    Mort- 
gaged      441 

Section    769. — What  Personal  Property  May  Be  Mortgaged 441 


CONTENTS.  XXXI 

PAGE 

Section  770. — How  Mortgage  Is  Executed  and  Acknowledged 442 

Section  771. — Mortgage  of  Married  Woman 442 

Section  772. — Mortgage  of  Minor 442 

Section  "JT^. — Mortgage  of  Partnership  Property 442 

Section  774. — Recording  Mortgages  443 

Section  774a. — Proof  of  Execution  of  Mortgage 443 

Section  775. — Effect  of  Recording  Mortgages  of  Real  Property. .  443 

Section  776. — Effect  of  Recording  a  Chattel  Mortgage 443 

Section  T]"]. — Mortgage  Not  Recorded  Good  between  Parties 444 

Section  778. — Mortgage  on  Homestead 444 

Section  779. — Declaration    of    Homestead 445 

Section  780. — Form    of    Declaration    of    Homestead   by    Husband 

and  Wife  445 

Section  781. — Form  of  Declaration  of  Homestead  by  Husband 446 

Section  782. — Form  of  Declaration  of  Homestead  by  Wife 448 

Section  783. — Value  of  Homestead 449 

Section  784. — Form  of  Real  Estate  Mortgage 449 

Section  785. — Rules    Which   Apply  to   Chattel   Mortgages 451 

Section  786. — Form  of  'Chattel  Mortgage 452 

Section  787. — Deed  as  Security  and  Agreement  to  Deed  Back 454 

Section  788. — Lawful  Interest   455 

Section  789. — Legal  Rate  Where  No  Interest  Specified 455 

Section  790. — Compound    Interest     455 

Section  791. — Interest  on  Judgment 455 

Section  792. — Who  Must  Pay  Taxes  on  Mortgage 455 

Section  793. — Insurance  on   Mortgaged  Buildings 456 

Section  794. — Attorney   Fees    456 

Section  795. — Mortgage  for  Future  Advances 456 

Section  796. — First  and  Second  Mortgages 456 

Section  797. — In  What  Court  Suit  Must  Be  Brought  to  Foreclose 

Mortgage 456 

Section  798. — When    Mortgage    Is    Outlawed 457 

Section  799. — What  Property  Can  Be  Sold  to  Satisfy  Mortgage . .  457 

Section  800. — Order  in  Which  Property  Must  Be  Sold 457 

Section  801. — Costs  of  Foreclosure 457 

Section  802. — Who   May  Buy  at   Foreclosure   Sale 458 

Section  803. — Certificate    of    Sale 458 

Section  804. — Assignment  of  Certificate  of  Sale 458 

Section  805. — What   Property  Can   Be  Redeemed. 458 

Section  806. — Time  for  Redemption 459 

Section  807. — Who    May    Redeem 459 

Section  808. — How  to  Redeem 459 

Section  809. — The  Sheriff's  Deed 460 

Section  810. — Deficiency  Judgment 460 

Section  811. — Possession  of  Property  during  Foreclosure  Proceed- 
ings     461 

Section  812. — Possession  of  Real  Property  during  Time  for  Re- 
demption      461 

Section  813. — Right  to  Rents  and  Profits 461 

Section  814. — Who    Must    Pay    for    Improvements    Made    during 

Foreclosure  Proceedings   462 

Section  815. — How  to  Collect  a  Note  When  Maker  Is  Dead 462 

Section  816. — Excuse  for  Not  Presenting  Claim  in  Time 463 

Section  817. — Foreclosure  of  Mortgage  When  the  Maker  Is  Dead  463 

Section  818. — Foreclosure  o7  Mortgage  Payable  in  Installments..  463 


Section  819.- 

Section  820.- 

Section  821.- 

Section  821a.- 


CONTENTS. 

PACK 

-Collection  of  Lost  or  Destroyed  Note 464 

-Note  Made  by  Partners   464 

-Liability  of  Partners  on  Partnership  Note 464 

-Assignment  of  Mortgage 464 


Section  822.- 

Section  823.- 

Section  824.- 

Section  825.- 

Section  826.- 

Section  827.- 

Section  828.- 

Section  829.- 

Section  830.- 

Section  831.- 

Section  832.- 

Section  833.- 

Section  834.- 

Section  834a.- 


Section  835.- 

Section  836.- 

Section  837.- 

Section  838.- 

Section  839.- 

Section  840.- 

Section  841.- 


PART  IV 
Attachments  and  Executions 

ATTACHMENTS. 

-Attachment   of   Debtor's    Property 466 

-What  Property  Can  Be  Attached 466 

-What    Property    Is    Exempt    from    Attachment    or 

Execution    >. 467 

-Mortgaged    Property   May   Be   Attached 471 

-Creditor   Liable    for   Unlawful    Attachment 471 

-Creditor    Attaching    Personal    Property    Must    Pay 

Mortgage     471 

-Garnishment    472 

-For  What   Property  Garnishee  Liable 472 

-Money  Due  as  Salary  to  Public  Officer 473 

-Money  in  the  Hands  of  the  Law 473 

-Attachment  of  Partnership  Property 473 

-Dissolution  of  Attachment 474 

-Bond  for  Release  of  Attached  Property 474 

-Lien    of    Attachment 474 

JUDGMENTS    AND    EXECUTIONS. 

-Judgments    475 

-Judgment  a  Lien  on  Real   Property 475 

-How  Long  Judgment  Lien  Continues 475 

-Judgment  Lien  on  Property  in  Another  County. . . .  476 
-How  Justice  Court  Judgment  Is  Made  Lien  on  Real 

Property    476 

-Time  within  Which  Execution  May  Issue 476 

-Exemption  Must  Be  Claimed  by  Debtor 477 


PART   V 


Last  Wills  and  Testaments 

Section  842. — Making    a    Will    478 

Section  843. — Who   May  Make  a   Will 479 

Section  844. — Will  of  Married  Woman 479 

Section  845. — What  May  Be  Disposed  of  by  Will 479 

Section  846. — Who  May  Take  by  Will 479 

Section  847. — Kinds   of  Wills 480 

Section  848. — Nuncupative  Wills 480 

Section  849. — Olographic  Wills  480 

Section  850. — Form  of  Olographic  Will  482 

Section  851. — Will  Attested  by   Witnesses 482 


Section 

852. 

Section 

8S3. 

Section 

8,S4. 

Section 

8Sv 

Section 

8s6.- 

Section 

8.S7.- 

Section 

8s8. 

Section 

8,SQ.- 

Section 

860.- 

Section 

861. 

Section 

86ia. 

CONTENTS.  xxxna 

PAGE 

-Gifts   to   Subscribing   Witnesses 482 

-How  a  Will  Is  Revoked 483 

-Revocation  by  Marriage 483 

-Share  of  Child  Born  after  the  Will 484 

-Omission   to   Provide   for   Children 484 

-Children   of   Devisee    484 

-When    Will    Takes    Effect 484 

-When  Legacies  Are  Due 485 

-Interest  on  Legacies 485 

-Grounds   for   Contest   of   Will 485 

-Administration  of  Estates 486 


PART   VI 

Corporations  in  California 


Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 

Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 
Sect 

Sect 
Sect 


tion 

872. 

ion 

873. 

ion 

874. 

ion 

875. 

ion 

876.- 

ion 

877.- 

ion 

878. 

ion 

879. 

ion 

880. 

ion 

881.- 

ion 

882.- 

ion 

883. 

ion 

884. 

ion 

885.- 

tion 

886. 

ion 

887. 

ion 

887a. 

ion 

887b. 

ion 

887c.- 

ion 

887d. 

ion 

888.- 

ion 

88q. 

ion 

890. 

ion 

891. 

ion 

891a. 

ion 

891b. 

ion 

892.- 

ion 

893.- 

ion 

894.- 

ion 

89.S.- 

ion 

896.- 

ion 

897. 

ion 

898.- 

ion 

899.- 

-Nature   of   Corporations 487 

-For  What  Purpose  Corporations  May  Be  Formed. .  487 

-Who  May  Form  a  Corporation 488 

-Articles   of    Incorporation    488 

-Form  of  Articles  of  Incorporation   488 

-Number   of   Signers    490 

-FiHng  of  Articles  of  Incorporation 490 

-Certificate  of  Secretary  of  State   491 

-Name  of  Corporation  Must  Be  New   491 

-Cost    of    Incorporating    491 

-Limit  of  Corporate  Existence   492 

-Extending   Corporate    Existence    492 

-Amendment  of  Articles  of  Incorporation  493 

-Change  of  Name 493 

-Change  of  Place  of  Business   494 

-Removal  from  One  Location   to  Another  in   Same 

City  . 494 

-Use  of  Word  "Trust"   495 

-Annual   License   Tax    495 

-Duplicate   of   Lost   Certificate    497 

-Corporations  to  Loan  Money  on  Chattel  Mortgages  497 

-Capital   Stock    497 

-Amount  of  Subscribed  Capital  to  be  Paid  in 498 

-Stockholders  and  Members   498 

-Shares   of   Stock    498 

-Preferred  and  Common  Stock 498 

-Bonded  Indebtedness  499 

-Subscription  for  Stock   490 

-Transfer  of  Shares  of  Stock  50P 

-Transfer  of  Stock  Held  by  Non-Resident  500 

-Transfer  of  Stock  Held  by  Married  Woman 501 

-Void  Certificates    501 

-Remedy  against   Corporation   Refusing  to   Register 

Transfer  of  Stock   501 

-Certificates  of  Stock  Are  Not  Negotiable 50^ 

-When    Corporation    Cannot    Claim    Its    Own    Stock 

Invalid 502 


xxxiifc  CONTENTS. 

PAGE 
Section    900. — Remedy  against  Corporation  for  Refusing  to  Recog- 
nize Stockholder  502 

Section    901. — Mortgage  of  Shares  of  Stock 503 

Section    902. — Seal  of  Corporation  503 

Section    903. — Deed  without  Corporate  Seal  503 

Section    904. — What  Real  Estate  May. Be  Held  by  Corporation 504 

Section    905. — Corporation  Must  Keep  within  Object  of  Its  Cre- 
ation    504 

Section    906. — Void  Contract  Cannot  Be  Ratified  505 

Section    907. — When  Corporation  Bound  by  Its  Own  Invalid  Act.  505 

Section    908. — Notice  to  Corporation    506 

Section    909. — Lease  of  Franchise    506 

Section    910. — Mortgage  of  Corporation  Property  507 

Section    911. — Assignment   of   Accounts 507 

Section    912. — Liability  of  Promoters    508 

Section    913. — What  Is  a  Corporation  De  Facto  508 

Section    914. — Who  May  Question  the  Validity  of  a  Corporation..  509 

Section    915. — Denial  that  a  Corporation  Exists 509 

Section    916. — Stockholder's  Right  to  Inspect  Books  and  Records.  509 
Section    917. — Motives  of  Stockholder  in  Making  Examination  of 

Books   510 

-Liability   of   Stockholders   for   Furnishing   Informa- 
tion to  Rival  Corporation  510 

Remedy  of  Stockholder  When  Inspection  of  Books 

Is  Refused 511 

-Liability  of  Stockholder  for  Corporation  Debts....  511 
Liability  of  Member  Where  There   Is   No   Capital 

Stock 512 

Pledgee  or  Trustee  Not  Liable  for  Debts 512 

When  Liability  of  Stockholder  Begins 513 

Fraudulent   Transfer    513 

Stockholder  May  Sue  Other  Stockholders 514 

Assignee  of  Creditor  May  Sue  Stockholders 514 

Creditor's  Right  to  Unpaid  Subscriptions  514 

Within   What   Time   Suit   against   Stockholder   May 

Be  Commenced   515 

When  Liability  of  Stockholder  Is  Satisfied 515 

Liability  of   Stockholders  in   Distillery  for  Federal 

Taxes 516 

Holding  Property  in  Other  Counties   516 

Within   What   Time    Corporation    Must    Commence 

Business  516 

Section    933. — Failure  to  Elect  Officers  5^7 

Section    934. — Increase  of  Capital  Stock   517 

Section    935. — Decrease  of  Capital  Stock  517 

Section    936. — Certificate  of  Increase  or  Decrease  of  Capital  Stock  518 

Section    937. — Paper  in  Which  Notices  Must  Be  Published 5^9 

Section    938. — Assessment  of  Stock   519 

Section    939. — Amount  of  Assessment  519 

Section    940. — Order  Levying  Assessment   520 

Section  940a. — Levy  of   Assessment    520 

Section    941. — Notice  of  Assessrhent   521 

Section    942. — Form  of  Notice  of  Assessment  521 

Section    943. — How  Assessment  May  Be  Enforced 522 

Section    944. — Notice  of  Sale   522 


Section  918.- 

Section  919.- 

Section  920.- 

Section  921.- 

Section  922.- 

Section  923.- 

Section  924.- 

Section  925.- 

Section  926.- 

Section  927.- 

Section  928.- 

Section  929.- 

Section  930.- 

Section  931.- 

Section  932.- 


Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 


945- 
946.- 

947-- 
948.- 
949.- 
950.- 
951- 
952.- 
953.- 
954- 
955-- 
956.- 
957-- 
958.- 
959- 
960.- 
961.- 
962.- 

963- 

963a.- 

964.- 

965-- 
966.- 
967.- 


Section  968.- 

Section  969.- 

Section  970.- 

Section  971.- 

Section  972.- 

Section  973.- 

Section  974.- 

Section  975.- 

Section  976.- 

Section  977.- 

Section  978.- 

Section  979.- 


Section  980.- 

Section  981.- 

Section  982.- 

Section  983.- 

Section  984.- 

Section  985.- 

Section  986.- 

Section  986a.- 

Section  987.- 

Section  988.- 

Section  989.- 

Section  990.- 

Section  991.- 


CONTENTS.  xxxiic 

PAGE 

-Form  of  Notice  of  Sale 523 

-Who  Are  Liable  on  Assessments  523 

-Extension  of  Time  for  Payment  and  Sale 524 

-Sale  of  Stock  for  Assessment  524 

-Purchase  of  Delinquent  Stock  by  the  Corporation..  525 

-Suit  to  Recover  Amount  of  Assessment 525 

-Lien    for    Assessment    526 

-By-Laws  of  Corporation    526 

-How  By-Laws  Adopted   527 

-What  By-Laws  May  Provide  for 527 

-Book  of  By-Laws   528 

-Amendment  of  By-Laws  528 

-Repealing  Old  and  'Adopting  New  By-Laws 528 

-Record  of  Amendments  528 

-The  Board  of  Directors    529 

-Number  of  Directors  529 

-Qualification  of  Directors  529 

-Directors   for   the   First   Year 529 

-Election  of  Directors  530 

-Notice  of  Meetings    53° 

-Who  May  Vote  at  Election  of  Directors 531 

-Who   May  Vote   Pledged   Stock 531 

-Who  May  Vote  Stock  in  Hands  of  Trustee 532 

-Who  May  Vote  Stock  in  Hands  of  Administrator 

or  Executor  532 

-Who  May  Vote  Stock  Belonging  to  Minor 532 

-Who  May  Vote  Stock  Belonging  to  Insane  Person . .   533 

-Voting  by  Proxy 533 

-Organization  of  Board  of  Directors  534 

-Duties  of  President,  Secretary,  and  Treasurer 534 

-Other  Officers  534 

-Quorum  of  Directors  534 

-Director  Cannot  Vote  on   Matter  in  Which   He  Is 

Interested 534 

-Regular  and  Special  Meetings 536 

-Publicity    Cannot    Make    Illegal    Acts    of    Directors 

Valid  536 

-Vacancy  in  Board  of  Directors 53^ 

-Can  a  Corporation   Perform   Corporate  Acts,   Such 
as  the  Mortgaging  of  Its  Real  Property,  While 
There  Is  a  Vacancy  in  Its  Board  of  Directors?. .  536 
-Services  of  Director  Outside  of  His  Duties  as  Such.  538 

-Liability  of  Directors  for  Money  Embezzled 538 

-Advances  of  Money  by  Director  538 

-Directors  in  Two  Corporations   538 

-Authority   of    President    539 

-President  May  Employ  Attorney   539 

-Dividends  539 

-Agreement  to  Divide  Capital  Stock  Among  Stock- 
holders Void    540 

-Extent  of  Debts  to  be  Created  540 

-Records  of  Corporation  540 

-Removal  of  Directors  from  Office   541 

-Examination  of   Corporations    541 

-Dissolution  of  Corporation 541 


xxxiid  CONTENTS. 

PAGE 
Section    992. — Disposition  to  be  Made  of  Property  upon  Dissolu- 
tion    543 

Section    993. — False  Reports   543 

Section    994. — Transfer  of  Franchise   543 

Section    995. — Transfer  of  Foreign  Concessions 544 

Section    996. — General  Powers  of  Corporation    544 

Section    997. — Taxation  of  Corporations  545 

Section    998. — Laws  Applying  to  Particular  Corporations  545 

Section    999. — Banking  Corporations    545 

(a) — Division  of  Banks  into  Classes  545 

(b) — Foreign  Corporations  546 

(c) — Branch  Banks  547 

(d) — Bank   Directors    547 

(e) — Unincorporated  Bankers  548 

(f) — Advertising 548 

(g) — Deposits  of  Dead  Persons  549 

(h) — Deposits  by  Married  Women  or  Minors 549 

(i) — List  of  Stockholders   550 

( j ) — Capital  and  Reserve   551 

(k) — Departments 554 

(1)— Sale   of   Assets    556 

(m) — General  Regulations  556 

(n) — Examination  of  National  Banks 560 

(o) — Money  Belonging  to  Estates  561 

(p) — Savings  Banks   561 

(q) — Commercial  Banks    568 

(r)^Trust  Companies  570 

(s) — State  Banking  Department 576 

(t) — Lien  of  Bank  579 

(u) — National  Bank  Cannot  Deal  in  Stocks  580 

(v) — Deposit  of  State  Money  580 

(w) — Deposit  of  County  or  City  Money 580 


PART    VII 


Section 

1002.- 

Section 

1003.- 

Section 

1004." 

Section 

1005.- 

Section 

1006.- 

Section 

1006a.- 

Section 

1007.- 

Section 

1008.- 

Section 

1009.- 

Section 

lOIO.- 

Section 

lOII.- 

Section 

1012.- 

Section 

1013- 

Section 

1014.- 

Section 

1015- 

Section 

ioi6.- 

Section 

1017.- 

(a)- 

Mines  and  Mining 

-United  States  Laws 583 

-State  Laws    583 

-Local  Rules  and  Customs  583 

-Who  May  Locate  a  Mining  Claim  584 

-Upon  What  Land  Mining  Claim  May  Be  Located . .   584 

-Valuable  Mineral  Deposit 584 

-What  Is  Mining 585 

-What  Constitutes  a  Valid  Location   585 

-The  Discovery 585 

-Marking  the  Boundaries  586 

-Location  Notice  586 

-Form  of  Notice  of  Location  of  Lode  Claim 586 

-Form  of  Notice  of  Location  of  a  Placer  Claim....   587 

-Recording  Location  Notice 588 

-Size  of  Lode  Claim 588 

-Size  of  Placer  Claim  589 

-Discovery  on  Placer  Ground  590 

-Discovery  of  Oil   590 


Section 

1018.- 

Section 

1019.- 

(a)- 

Section 

1020.- 

Section 

1021.- 

Section 

1022.- 

Section 

1023.- 

Section 

1024.- 

Section 

1025.- 

Section 

1026.- 

Section 

1027.- 

Section 

1028.- 

Section 

1029.- 

Section 

1030.- 

Section 

1031.- 

Section 

1032.- 

Section 

1033.- 

Section 

1034.- 

Section 

1035.- 

Section 

1036.- 

Section 

1037-- 

Section 

1038.- 

Section 

I03Q.- 

Section 

1040.- 

Section 

1041.- 

(a)- 

(b) 

(c)- 

(d) 

(e)- 

(f) 

(S) 

(h) 

Section 

1042.- 

Section 

1043.- 

Section 

I044-- 

Section 

104.S.- 

Section 

1046.- 

Section 

I047-- 

Section 

1048.- 

Section 

I04Q.- 

Section 

1050.- 

Section 

1051.- 

Section 

1052. 

Section 

I053- 

Section 

io,S4- 

Section 

1055- 

Section 

1056. 

Section 

1057- 

Section 

1058. 

CONTENTS.  rsxiie 

PAGE 
-Time  within  Which  Location  Must  Be  Made  after 

Discovery 591 

-Oil  and  Asphaltum  591 

-Transfer  of  Rights  by  Members  of  Association ....  592 

-Annual  Labor  and  Assessment  Work 592 

-When  First  Work  Must  Be  Done 593 

-Where  Work  Should  Be  Done 593 

-Proof  of  Assessment  Work   594 

-Form  of  Proof  of  Assessment  Work 594 

-Relocation  of  Claim  after  Forfeiture  595 

-Mineral  Entries  within  Forest  Reserves    595 

-Location  by  Agents   596 

-Location  by  Minors 596 

-Tunnel  Claim   596 

-Location  of  Tunnel  Claim 597 

-Lode  and  Placer  Claims  in  the  Same  Ground S98 

-Mill  Sites  598 

-Timber  for  Mining  Purposes  599 

-Water  and  Water-Rights  for  Mining  Purposes 599 

-Mining  Partnerships  599 

-Liens  on  Mining  Claims  .  ■. 599 

-Entry  of  Coal  Lands  599 

-How  to  Obtain  a  Patent  to  a  Mining  Claim 600 

-Mining  Lease   601 

-Form  of  Mining  Lease  602 

-Oil  and  Gas  Leases 604 

-Right  to  Bore  for  Oil  Necessarily  Exclusive 604 

-Lessee   Must   Begin   Operations   within   a  Reason- 
able Time 605 

-Failure  to  Commence  Work  Forfeits  the  Lease....  605 

-Work  Must  Be  Prosecuted  with  Diligence 605 

-Lease  Must  Be  Literally  Complied  With 605 

-Failure  to  Find  Oil 606 

-Net  Proceeds   606 

-Failure  to  Pay  Royalty 606 

-Form  of  Oil  Lease  606 

-Mining  Deeds  610 

-Form  of  Mining  Deed  610 

-Working  Mine  on  Shares  611 

-When  Boundary  Marks  Are  Sufficient 612 

-Error  in  Description  in  Location  Notice 612 

-Character  of  Annual  Assessment  Work  612 

-Time  within  Which  Relocation  Can  Be  Made....  613 

-Resumption  of  Work 613 

-Failure  to  Comply  with  Local  Customs  in  Working 

Mining  Claims  614 

-Overlapping  Locations  614 

-Intersecting  Veins    61^ 

-Rule  that  End  Lines  Shall  Parallel  Each  Other....  615 
-Extra-Lateral  Right,  or  Right  to  Pursue  the  Vein 
or  Lode  on  Its  Dip  Beyond  the  Side  Lines  9f 

the  Claim 616 

-Damages  for  Trespass  on  Mining  Claim  617 

-State  Homestead  on  Mining  Claim  617 

-School  Lands   618 


xxxiif  CONTENTS, 

PAGE. 

Section     1059. — Authority    of    Mine    Superintendents    to    Purchase 

Supplies 618 

Section     1060. — HydrauHc  Mining  619 

Section     1061. — Tailings  and  Debris   619 

Section     1062. — California  Debris  Commission 619 

Section     1063. — Consolidation  of  Mining  Corporations    620 

(a) — Transfer  of  Stock  of  Mining  Corporations 620 

(b) — Hours  of  Work  in  Underground  Mines  622 

(c)— Abandoned  Oil  Wells 622 


Section 

1064.- 

Section 

1065.- 

Section 

1066.- 

Section 

1067.- 

Section 

1068.- 

Section 

1069.- 

Section 

1070.- 

Section 

1071.- 

Section 

1072.- 

(a)- 

Section 

1073.- 

Section 

1074.- 

Section 

1075- 

Section 

1076.- 

Section 

1077.- 

(a)- 

(b)- 

(c)- 

Section 

1078.- 

Section 

1079.- 

(a)- 

(b)- 

(O- 

(d) 

(e)- 

(f)- 

(r) 

(h) 

Section 

1080.- 

Section 

io8oa.- 

Section 

io8ob. 

PART   VIII 

Water  and  Water  Rights 

-Appropriation  of  Water 623 

-Notice  of  Appropriation  623 

-Notice   Must   Be  Recorded 623 

-Change  of  Place  of  Intended  Diversion 623 

-Form  of  Notice  of  Appropriation  624 

-When  Work  Must  Be  Commenced  625 

-Forfeiture    of    Claim 626 

-Riparian  Rights  626 

-Protection  of  Riparian  Rights 627 

-Manner  of  Using  Water  627 

-Water  Rights  on  Public  Lands  627 

-Obtaining  Title  by  Prescription 628 

-Water  for  Irrigation   628 

-Irrigation  Districts   629 

-Water  for  Mining 630 

-The  California  Statute   630 

-First  Appropriator  Has  First  Right  630 

-Miner's  Inch  of  Water   630 

-Subterranean  Waters. — The  Case  of  Katz  vs.  Walk- 

inshaw 631 

-Water  Companies 645 

-Water  in  Case  of  Fire 646 

-Water  Rates   646 

-Duty  to  Furnish  Water    646 

-Water  Company  Not  Liable  for  Loss  by  Fire 646 

-Water  Rates  Must  Be  Reasonable  647 

-Damages  for  Failure  to  Supply  Water  648 

-Duty  to  Fix  Reasonable  Rates  Can  Be  Compelled  648 

-Pollution  of  Water  648 

-Condemnation  of  Water  for  Public  Use 649 

-Artesian    Wells    649 

-Flood    Waters    650 


PART   IX 

Administration  of  Estates 

ESTATES    OF   DECEASED    PERSONS. 

Section     1 126. — Settlement  of  Estates    651 

Section     1127. — Executors  and  Administrators 651 


Section 

1128.- 

Section 

1129.- 

(a)- 

(b)- 

(c)- 

(d)- 

(e)- 

U)- 

(R)- 

Section 

1130.- 

(a)- 

(b)- 

Section 

1131- 

(a)- 

Section 

1132.- 

Section 

II33-- 

Section 

1134- 

Section 

1135- 

Section 

1136.- 

Section 

II37-- 

Section 

1138.- 

Section 

1139.- 

Section 

1140.- 

Section 

1141.- 

(a)- 

(b)- 

Section 

1142.- 

Section 

1143- 

(a)- 

(b)- 

Section 

1144.- 

Section 

1145- 

(a)- 

(b)- 

(c)- 

(d)- 

(e)- 

(f) 

(g) 

(h). 

(i)- 

(J) 

•    (k). 

Section 

1 146.- 

fa)- 

(b)- 

(c)- 

Section 

1147.- 

Section 

1148.- 

Section 

II49- 

Section 

1150." 

Section 

II5T- 

Section 

1 1 52. 

CONTENTS.  xxxii^r 

PAGE 

—Where  Letters  Will  Be  Granted 651 

—Proof  of  Will  652 

—Who  May  Petition  for  Probate  of  Will 652 

— When  Executor  Forfeits  Right  to  Letters 652 

—Executor  May  Decline  to  Act 652 

—Proof  of  Will 653 

— Recording  Will    653 

— Proof  of  Lost  or  Destroyed  Will  653 

— Proof  of  Foreign  Will  654 

— Letters  Testamentary 654 

— Revocation  of  Letters   654 

— Married  Woman  or  Corporation  May  Act 655 

— Letters  of  Administration 655 

— Who  Are  Entitled  to  Letters  of  Administration...  655 
— Who  Are  Incompetent  to  Act  as  Executor  or  Ad- 
ministrator    655 

— Oath  of  Executor  or  Administrator   656 

— Bond  of  Executor  or  Administrator    656 

— Separate  Bonds 657 

— When  Executor  May  Act  Without  Bonds 657 

— Special  Administrator 657 

— Release  of  Bondsmen  658 

— Resignation  of  Executor  or  Administrator  658 

— Suit  Against  Bondsmen  658 

— Inventory  and  Appraisement  658- 

— Compensation   of   Appraiser    659 

—When  Additional  Inventory  Required  659 

— Money  in  Bank  659 

— Probate  Homestead  and  Family  Allowance   660 

— Exempt  Property    661 

— Extra   Allowance    661 

-Administration  When  Estate  Does  Not  Exceed  Fif- 
teen Hundred  Dollars  ._ 661 

— Claims  Against  the  Estate  662 

— Notice  to  Creditors  662 

— Claims  Barred  if  Not  Presented  in  Time 662 

— Claims  Must  Be  Verified  662 

— Allowance  and  Rejection  of  Claims   663 

— Suit  on  Rejected  Claim   663 

— Claim  When  Suit  Pending 664 

— Payment    of    Judgments 664 

— Allowance  of  Claim  in  Part 664 

— Statute  of  Limitation    664 

— Claim  of  Executor  or  Administrator  664 

— Failure   to   Present    Mortgage   Claim    665 

— Sale  of  Mortgage  oT  Property  665 

— Sale  of  Personal  Property  665 

— Sale  of  Mortgage  of  Real  Property 666 

— Confirmation  of  Sale   667 

—Sale  Under  a  Will    ,.667 

— Compensation  of  Executors  and  Administrators. .  .*.  668 

— Attorney  Fees  668 

— Accounts  of  Executors  and  Administrators 668 

— Payment  of  Debts  669 

— Erection  of  Monument 669 


Section     1153.- 

Section     1154.- 

Section     1155- 

(a)- 

(b)- 

(c)- 

Section  1156.- 

Section  1157.- 

Section  1158.- 

Section  1159.- 


CONTENTS. 

PAGE 

Partial  Distribution  of  Estate   669 

Final  Distribution  of  Estate  670 

Succession  to  Property 670 

•Inheritance  of  Husband  and  Wife  from  Each  Other  673 
-Distribution  of  Community  Property  on  Death  of 

Husband 673 

Distribution  of  Community  Property  on  Death  of 

Wife 673 

Rights  of  Illegitimate  Child   674 

Advancements  674 

Contract  to  Convey  Real  Estate  675 

Discharge  of  Administrator  or  Executor 675 


PART  I 

BUSINESS  CONTRACTS  AND  LEGAL 
OBLIGATIONS 

Making  of  Contracts 

Section  1.— BUSINESS  CONTRACTS.— By  the  above 
heading  is  meant  the  contracts  and  obligations  which  are 
connected  directly  with  the  usual  business  affairs  of  a 
community.  There  are  many  relations  in  life  which  con- 
stitute or  arise  out  of  contracts,  and  yet  which  are  not 
connected  with  the  ordinary  business  affairs  of  men.  Such 
relations  it  is  not  the  purpose  of  this  book  to  indicate,  but 
only  the  contracts,  the  obligations,  the  rights  and  liabilities 
of  business  men  in  every-day  affairs,  as  defined  by  the  laws 
of  California. 

Section  2.— PARTIES  TO  CONTRACTS.— A  contract 
is  an  agreement  to  do  or  not  to  do  a  certain  thing.  It  is 
essential  to  the  existence  of  a  contract  that  there  should 
be  parties  capable  of  contracting,  their  consent,  a  lawful 
object,  and  a  sufficient  consideration.  With  reference  to 
the  parties  to  a  contract,  the  law  of  California  provides  that 
all  persons  are  capable  of  contracting,  except  minors,  per- 
sons of  unsound  mind,  and  persons  deprived  of  civil  rights. 
A  minor  in  this  State  cannot,  under  the  age  of  18,  make 
a  contract,  relating  to  any  interest  in  real  property,  or 
relating  to  any  personal  property  not  in  his  immediate  pos- 
session or  control.  But  a  minor  may  make  any  other  con- 
tract, and  it  will  be  good,  unless  disaffirmed  and  repudiated. 
The  contract  of  a  minor,  if  made  by  him  before  he  is  eigh- 
teen years  of  age,  may  be  disaffirmed  by  the  minor  himself, 

(3  3) 


34  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

either  before  his  majority  or  within  a  reasonable  time 
afterwards,  or,  in  case  of  his  death  within  that  period,  by 
his  heirs  or  personal  representatives;  and  if  the  contract 
be  made  by  the  minor  when  he  is  over  the  age  of  18, 
he  can  disaffirm  it,  but  must  restore  the  consideration  to  the 
party  from  whom  it  was  received,  or  pay  its  equivalent. 
There  is  one  exception  to  the  law  above  stated :  A  minor 
cannot  disaffirm  a  contract,  because  he  was  under  age,  to 
pay  the  reasonable  value  of  things  necessary  for  his  support 
or  the  support  of  his  family,  if  the  contract  was  entered  into 
by  him  when  he  was  not  under  the  care  of  a  parent  or 
guardian  able  to  provide  for  him  or  his  family. 

A  minor  in  California  is  a  male  under  the  age  of  21  or  a 
female  under  the  age  of  18. 

A  person  entirely  without  understanding  has  no  power 
to  make  a  contract  of  any  kind,  but  he  is  liable  for  the 
reasonable  value  of  things  furnished  to  him  necessary  for 
his  support  or  the  support  of  his  family.  Where  a  per- 
son is  of  unsound  mind,  and  yet-  is  not  entirely  without 
understanding,  he  may  enter  into  a  contract  at  any  time 
before  his  unsoundness  of  mind  has  been  judicially  deter- 
mined, but  such  contract  will  be  voidable,  subject  to 
rescission.  After  his  incapacity  has  been  judicially  deter- 
mined, a  person  of  unsound  mind  cannot  make  any  con- 
veyance or  other  contract,  until  a  court  has  decided  that 
his  reason  is  restored. 

A  person  deprived  of  civil  rights  is  not  capable  of  making 
a  contract  while  in  that  condition.  A  person  is  deprived 
of  civil  rights  when  he  is  sentenced  to  imprisonment  in  the 
State  Prison  for  life,  and  his  civil  rights  are  suspended 
during  the  term  when  he  is  sentenced  for  a  term  less  than 
life.  A  convict  may,  however,  make  and  acknowledge  a 
sale  and  conveyance  of  property. 

With  the  exceptions  above  stated,  all  persons  in  Cali- 
fornia are  capable  of  being  parties  to  contracts. 

Civil  Code,   .Sections  33,  34,  38,  39,  40,    1556;    Penal 
Code,  Sections  673,  674,  675. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  35. 

Section  3.  —  CONSENT  OF  PARTIES  TO  CON- 
TRACT.— To  constitute  a  valid  contract,  the  consent  of 
the  parties  to  it  must  be  freely  given,  and  there  must  be  a 
mutual  consent,  and  their  consent  to  the  agreement  must 
be  communicated  by  each  to  the  other.  The  laws  of  Cali- 
fornia but  follow  the  principles  of  natural  justice  when 
they  provide  that,  when  the  consent  of  a  party  to  a  contract 
is  not  given  freely  and  voluntarily,  but  is  obtained  by 
fraudulent  acts  or  misrepresentations,  the  contract  cannot 
stand,  and  will  be  set  aside  by  the  courts  whenever  the 
facts  are  proved.  Some  of  the  facts  which  will  render  a 
contract  invalid,  by  reason  of  insufficient  consent  of  the 
parties,  are  where  the  consent  of  any  party  has  been 
obtained  by  imprisonment  of  the  person,  or  unlawful  deten- 
tion of  his  property,  or  threats  to  injure  his  person,  prop- 
erty, or  character,  or  deceiving  him  by  misrepresenting  or 
concealing  the  truth,  or  by  making  a  promise  without  any 
intention  of  performing  it.  Whenever  any  of  these  facts 
appear,  to  the  injury  of  a  party,  the  courts  of  California 
will  set  aside  the  contract.  Also,  a  contract  will  be  set 
aside,  because  free  consent  was  not  given,  whenever  one 
party  in  whom  another  has  confidence  uses  that  confi- 
dence for  the  purpose  of  taking  an  unfair  advantage  over 
the  latter,  or  whenever  one  party  takes  an  unfair  advantage 
of  another's  weakness  of  mind,  or  whenever  one  party 
takes  a  grossly  oppressive  and  unfair  advantage  of  an- 
other's necessities  or  distress.  Also,  consent  will  not  be 
considered  mutual  and  free,  whenever  a  mistake  is  made 
in  entering  into  a  contract,  where  either  party,  without 
negligence  on  his  part,  acts  under  an  unconscious  igno- 
rance or  forgetfulness  of  a  fact,  past  or  present,  material 
to  the  contract,  or  acts  in  the  belief  that  a  thing  material 
to  the  contract  exists  or  has  existed  when  in  fact  the  thing 
does  not  exist  and  never  did  exist.  Also,  a  contract  will 
be  set  aside  whenever  all  the  parties  act  under  a  mis- 
apprehension of  the  law,  all  supposing  that  they  know  and 
understand  it;  also,  because  of  misapprehension  of  the  law 


36  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

by  one  party  to  a  contract,  of  which  the  other  party  is 
aware  at  the  time  of  contracting,  but  which  he  does  not 
rectify. 

Civil  Code,  Sections  1565,  1567,  1569,  1570,  1572,  1575, 
1577,  1578. 

Section  4.— WHEN  CONSENT  IS  NOT  MUTUAL.— 

Consent  of  the  parties  is  not  mutual  unless  the  parties  all 
agree  upon  the  same  thing  in  the  same  sense. 
Civil  Code,  Section  1580. 

Section  5.— PROPOSAL  OF  CONTRACT,  ACCEPT- 
ANCE, AND  REVOCATION.— One  party  may  propose 
a  thing,  but  the  proposal  must  be  accepted  before  a  con- 
tract is  created.  An  acceptance  must  be  absolute  and  un- 
qualified. If  one  party  makes  a  proposition,  and  the  other 
replies  with  a  proposition  on  his  part,  there  is  no  contract, 
because  the  parties  have  not  mutually  agreed  upon  any- 
thing. The  proposal  may  be  revoked  at  any  time  before 
it  is  accepted.  It  is  revoked  by  giving  notice  of  its  with- 
drawal to  the  person  to  whom  the  proposal  was  made.  It 
is  also  revoked,  where  a  certain  time  was  given  in  which  to 
accept,  by  the  expiration  of  that  time  without  notice  of 
acceptance ;  it  is  also  revoked  by  the  failure  of  the  person 
to  whom  the  proposal  is  made  to  do  some  act  which  is 
required  of  him  aS  a  condition  preceding  the  acceptance; 
and  a  proposal  is  necessarily  considered  revoked  by  the 
death  or  insanity  of  the  proposer.  Any  usual  and  reason- 
able mode  of  giving  notice  of  acceptance  of  a  proposal  may 
be  adopted,  as,  by  mail,  or  in  person,  or  by  messenger,  and 
it  will  be  sufficient  to  constitute  a  contract.  But  the  pro- 
poser may  prescribe  a  certain  mode  in  which  notice  of 
acceptance  must  be  given,  and  the  proposer  will  not  be 
bound  unless  the  mode  prescribed  by  him  is  adopted. 
Civil  Code,  Sections  1582,  1583,  1585,  1586,  1587. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  37 

Section  6.— OBJECTS  OF  CONTRACT.— The  object 
of  a  contract  must  be  lawful  when  the  contract  is  made, 
and  possible  of  performance,  and  certain  in  its  terms. 
However,  the  law  considers  everything  possible  except  that 
which  is  impossible  in  the  nature  of  things,  and,  therefore, 
to  render  a  contract  invalid  for  impossibility  of  perform- 
ance, it  must  be  apparent  from  the  nature  of  the  thing 
agreed  upon  that  it  will  not  be  possible  to  perform  it. 
Where  a  contract  has  but  a  single  object,  and  such  object 
is  unlawful,  whether  in  whole  or  in  part,  or  wholly  impos- 
sible of  performance,  or  so  vaguely  expressed  as  to  be 
wholly  unascertainable,  the  entire  contract  is  void.  But 
where  a  contract  has  several  distinct  objects,  of  which  one 
at  least  is  lawful,  in  whole  or  in  part,  the  contract  is  void 
as  to  the  unlawful  object,  and  valid  as  to  the  rest. 

Civil  Code,  Sections  1595,  1596,  1597,  1598,  1599. 

Section  7.— CONSIDERATION    OF    A    CONTRACT. 

— The  consideration  of  a  contract  need  not  necessarily  be 
money.  Of  course,  the  consideration  must  be  lawful,  that 
is,  it  must  not  be  contrary  to  any  express  provision  of  law, 
or  against  the  policy  of  express  law,  or  contrary  to  good 
morals.  But  the  consideration  may  consist  in  any  benefit 
conferred  or  agreed  to  be  conferred  upon  the  promisor  by 
any  other  person,  to  which  the  promisor  is  not  already  law- 
fully entitled,  or  in  any  prejudice  suffered  or  agreed  to  be 
suffered  by  the  person  to  whom  the  promise  is  made,  which 
he  is  not  already  lawfully  bound  to  suffer.  The  abandon- 
ment of  a  right,  or  forbearing  to  enforce  a  claim,  or  any 
detriment  suffered  by  the  promisee,  will  constitute  suffi- 
cient consideration  for  a  contract,  and  be  as  binding  as 
though  the  payment  of  money  were  agreed  upon. 
Civil  Code,  Sections  1605,  1607,  1667. 

Section  8.— WHAT  CONTRACTS  MAY  BE  VERBAL. 

— All  contracts  may  be  entered  into  verbally,  except  such 
as  are  specially  required  by  law  to  be  in  writing.     If  the 


38  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

contract  is  one  which  the  law  does  not  specially  require 
to  be  in  writing,  the  verbal  agreement  of  the  parties  is 
as  good  as  any  other,  and  as  binding  as  it  would  be  if 
reduced  to  Ayriting. 

Section  9.— WHAT  CONTRACTS  MUST  BE  IN 
WRITING. — The  law  of  California  provides  that  the  fol- 
lowing contracts  are  invalid,  unless  the  contract,  or  some 
note  or  memorandum  describing  its  terms,  is  put  into  writ- 
ing and  subscribed  by  the  party  to  be  charged,  or  by  his 
agent:  (1)  An  agreement  that  by  its  terms  is  not  to  be 
performed  within  a  year  from  the  making  thereof;  (2)  A 
special  promise  to  answer  for  the  debt,  default,  or  mis- 
carriage of  another ;  but  there  is  one  exception  to  this  pro- 
vision, where  it  appears  that  the  promise  was  such  as  the 
law  considers  an  original  obligation  on  the  part  of  the 
promisor ;  (3)  An  agreement  made  upon  consideration  of 
marriage,  other  than  a  mutual  promise  to  marry ;  (4)  An 
agreement  for  the  sale  of  goods,  chattels,  or  things  in  ac- 
tion, at  a  price  not  less  than  two  hundred  dollars,  unless 
the  buyer  accepts  or  receives  part  of  such  goods  and  chat- 
tels, or  the  evidences,  or  some  of  them,  of  such  things  in 
action,  or  pay  at  the  time  some  part  of  the  purchase  money ; 
but,  when  a  sale  is  made  at  auction,  an  entry  by  the 
auctioneer  in  his  sale  book,  at  the  time  of  the  sale,  of  the 
kind  of  property  sold,  the  terms  of  the  sale,  the  price,  and 
the  names  of  the  purchaser  and  person  on  whose  account 
the  sale  is  made,  is  a  sufficient  memorandum ;  (5)  An  agree- 
ment for  the  leasing  for  a  longer  period  than  one  year,  or 
for  the  sale  of  real  property,  or  for  an  interest  therein ;  and 
such  agreement,  if  made  by  an  agent  of  the  party  sought 
to  be  charged,  is  invalid,  unless  the  authority  of  the  agent 
is  in  writing,  and  subscribed  by  the  party  sought  to  be 
charged ;  (6)  An  agreement  authorizing  or  employing  an 
agent  or  broker  to  purchase  or  sell  real  estate  for  compen- 
sation or  commission ;  (7)  An  agreement  which  by  its  terms 
is  not  to  be  performed  during  the  lifetime  of  the  promisor 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  39 

or  an  agreement  to  devise  or  bequeath  any  property,  or  to 
make  any  provision  for  any  person  by  will. 

Civil  Code,  Section  1624  (as  amended  in  1905). 

Section  10.— CONTRACTS  AGAINST  PUBLIC  POL- 
ICY.— There  are  certain  contracts  which  the  law  says  are 
against  public  policy,  and  therefore  invalid.  Generally  any 
contract  which  has  for  its  object  the  violation  of  any  law 
of  the  land  would  be  illegal,  without  reference  to  the  ques- 
tion of  public  policy.  But  the  State  recognizes  the  usual 
and  natural  distinctions  between  morality  and  immorality, 
that  which  is  inherently  right  and  that  which  is  inherently 
wrong,  and  forbids,  on  the  ground  of  public  policy,  cer- 
tain contracts  which  may  not  be  forbidden  by  the  statutes. 
Therefore  it  is  said  that  all  contracts  in  violation  of  moral- 
ity are  void ;  that  agreements  to  do  acts  forbidden  by  the 
law  of  God,  or  which  are  manifestly  in  furtherance  of  im- 
morality, and  tend  to  contaminate  the  public  mind,  can 
not  be  enforced  in  the  courts  of  this  State.  Some  illustra- 
tions of  this  rule  are,  where  lodgings  are  leased  for  purposes 
])f  prostitution;  where  a  contract  is  made  for  the  printing 
or  sale  of  obscene  or  libelous  books;  so,  also,  contracts  to 
prevent  competition  at  an  auction  sale,  contracts  in  re- 
straint of  trade,  contracts  in  restraint  of  marriage,  marriage 
brokerage  contracts,  wagers,  and  gambling  contracts ;  all 
of  these,  or  others  of  like  character,  are  opposed  to  good 
morals,  and  are  void,  whether  expressly  prohibited  by 
statute  or  not. 

Section  11. —  CONTRACTS  IN  RESTRAINT  OF 
TRADE.— ^Every  contract  by  which  any  one  is  restrained 
from  exercising  a  lawful  profession,  trade,  or  business  of 
any  kind,  is  to  that  extent  void.  The  courts  have  found 
great  difficulty,  however,  in  determining  what  are  contracts 
in  restraint  of  trade,  within  the  meaning  of  the  law.  It 
is  the  public  policy  to  encourage  trade  and  traffic,  and  any 
contract   which    would   have   the   effect   of   depriving   the 


40  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

public  of  the  advantages  of  competition  in  trade  is  void, 
as  opposed  to  public  policy.  Thus,  where  all,  or  nearly 
all,  of  an  article  of  trade  or  commerce  within  a  community 
or  district  is  brought  within  the  hands  of  one  man  or  set 
of  men,  so  as  to  practically  bring  the  handling  or  produc- 
tion of  the  commodity  within  such  single  control,  to  the 
exclusion  of  competition  or  free  traffic  therein,  this  con- 
stitutes a  monopoly,  and  is  in  restraint  of  trade.  Rea- 
sonable combinations  to  regulate  prices  are  valid.  But  if 
one  agrees  with  another  that  he  will  never  again  at  any 
time  or  place  work  at  his  trade,  or  carry  on  his  business, 
or  exercise  his  profession,  such  a  contract,  being  without 
limitation  as  to  time  or  place,  is  considered  to  be  in  restraint 
of  trade,  and  is  void. 

Civil  Code,  Section  1673. 

Section  12.— SALE  OF  GOOD  WILL  OF  A  BUSI- 
NESS.— The  sale  of  the  good  will  of  a  business  forms  an 
exception  to  the  law  stated  in  the  last  Section.  One  who 
sells  the  good  will  of  a  business  may  agree  with  the  buyer 
that  he  will  not  carry  on  a  similar  business  within  a  speci- 
fied county  or  city,  so  long  as  the  buyer,  or  any  person  to 
whom  the  buyer  shall  dispose  of  the  good  will,  carries  on 
a  like  business  at  the  same  place.  There  is  an  exception, 
also,  in  the  case  of  partners.  Partners  may,  upon  a  dis- 
solution of  the  partnership,  make  a  valid  contract  that 
none  of  them  will  carry  on  a  similar  business  within  the 
whole  or  a  part  of  the  same  city  or  town  where  the  part- 
nership business  has  been  transacted. 
Civil  Code,  Sections  1674,  1675. 

Section  13.  —  ALTERATION  OF  VERBAL  CON- 
TRACT.— Contracts,  verbal  or  written,  may  be  subse- 
quently altered,  so  as  to  make  the  terms  or  conditions  dif- 
ferent from  what  they  were  at  first.  But  where  the  con- 
tract was  verbal  only,  the  law  provides  that  the  consent 
of  the  parties  to  its  alteration  in  any  respect  must  be  ex- 


BUSINESS   CONTRACTS   AND   IjEGAL   OBLIGATIONS.  41 

pressed  in  writing,  and  where  the  consent  to  the  alteration 
is  thus  given  and  made,  in  writing,  it  does  not  require  a 
new  consideration. 

Civil  Code,  Sectfon  1697. 

Section  14.— ALTERATION  OF  WRITTEN  CON- 
TRACT.— A  contract  in  writing  may  be  altered  by  a  con- 
tract in  writing,  or  by  an  executed  oral  agreement,  and  not 
otherwise.  The  e!kecuted  oral  agreement,  which  will  be 
sufficient  to  alter  a  previous  written  contract,  must  consist 
in  the  doing  or  the  suffering  of  something  not  required  to 
be  done  or  suffered  by  the  terms  of  the  writing.  So,  if 
the  parties  verbally  agree  upon  the  doing  of  something, 
which  one  or  the  other  would  be  bound  to  do  in  the  proper 
fulfilment  of  the  written  contract,  this  does  not  constitute 
an  executed  oral  agreement  to  alter  the  previous  writing. 
Civil  Code,  Section  1698. 

Section  15.— EXPRESS  CONTRACTS.  —  An  express 
contract  is  one  the  terms  of  which  are  stated  in  words, 
from  which  words,  used  in  a  writing  or  orally  between  the 
parties,  the  agreement  between  the  parties  is  ascertained. 

Section  16.— IMPLIED  CONTRACTS.— An  implied 
contract  is  one  the  existence  and  terms  of  which  are  mani- 
fested by  the  conduct  of  the  parties.  The  conduct  of  the 
parties  toward  each  other,  the  circumstances  surround- 
ing the  transaction,  may  be  such  that  the. law  will  imply 
that  certain  agreements  were  entered  into,  although  no 
evidence  other  than  such  circumstances  or  conduct  may 
exist  as  proof  of  the  contracts.  The  law  will  imply  that 
a  party  did  make  such  a  stipulation  as,  under  the  circum- 
stances disclosed,  he  ought,  upon  the  principles  of  honesty, 
justice,  and  fairness,  to  have  made.  Thus,  if  one  party 
accepts  the  services  of  another,  or  receives  his  goods,  hav- 
ing reaped  the  benefit  of  such  services  or  goods,  the  law 
implies  a  promise  on  his  part  to  pay  for  them. 
Civil  Code,  Section  1621. 


42  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

Section    17.  —  TERMINATION    OF    CONTRACTS.— 

A  contract  is  terminated,  of  course,  when  it  has  been  fully 
performed,  but  it  may  also  be  rescinded  or  canceled  under 
certain  circumstances. 

Section  18.— RESCISSION  OF  CONTRACT.— A  party 
to  a  contract  may  rescind  it,  if  his  consent  to  it,  or  the 
consent  of  any  party  jointly  contracting  with  him,  was 
given  by  mistake,  or  obtained  througli  duress,  menace, 
fraud,  or  undue  influence  on  the  part  of  the  party  as  to 
whom  he  rescinds,  or  on  the  part  of  any  other  party  to  the 
contract  jointly  interested  with  the  latter.  A  party  to  a 
contract  may  also  rescind  it  if,  through  the  fault  of  the 
party  as  to  whom  he  rescinds,  the  consideration  for  his 
obligation  fails,  in  whole  or  in  part ;  or  if  the  consideration 
becomes  entirely  void,  for  any  cause ;  or  if  the  considera- 
tion, before  it  is  rendered  to  him,  fails  in  a  material  respect, 
from  any  cause.  A  party  to  a  contract  may  also  rescind  it 
by  consent  of  all  the  other  parties. 
Civil  Code,  Section  1689. 

Section  19. —  EXTINCTION  OF  WRITTEN  CON- 
TRACT BY  CANCELLATION.— The  destruction  or  can- 
cellation of  a  written  contract,  or  of  the  signature  of  the 
parties,  with  the  intent  to  extinguish  the  obligation,  does 
extinguish  it  as  to  all  the  parties  consenting  to  the  act.  But 
where  a  contract  is  executed  in  duplicate,  the  destruction 
of  one  copy,  while  the  other  exists,  will  not  have  the  effect 
of  extinguishing  the  contract. 

Civil  Code,  Sections  1699,  1701. 

Section  20.— INTERPRETATION  OF  CONTRACTS. 

— The  essential  thing  in  the  interpretation  of  a  contract, 
in  ascertaining  what  is  meant  by  it,  is  to  find  the  intention 
of  the  parties.  The  law  of  California  provides  that  a  con- 
tract must  be  so  interpreted  as  to  give  effect  to  the  mutual 
intention  of  the  parties  at  the  time  of  contracting,  so  far 
as  that  intention  is  ascertainable  and  lawful.    The  language 


BUSINESS    CONTRACTS  AND   LEGAL   OBLIGATIONS.  43 

of  a  contract  is  to  govern  its  interpretation,  if  the  lan- 
guage is  clear  and  explicit,  and  does  not  involve  an  ab- 
surdity. When  a  contract  has  been  reduced  to  writing,  the 
intention  of  the  parties  is  to  be  ascertained  from  the  writ- 
ing alone,  if  possible.  When,  through  fraud,  mistake,  oi 
accident,  a  written  contract  fails  to  express  the  real  inten- 
tion of  the  parties,  oral  evidence  will  be  received  in  the 
courts  to  show  what  the  intention  of  the  parties  really 
was,  and,  when  ascertained,  the  real  intention  will  govern, 
and  the  erroneous  parts  of  the  writing  will  be  disregarded. 
The  whole  of  a  contract  is  to  be  taken  together,  so  as  to 
give  effect  to  every  part,  if  reasonably  practicable.  The 
whole  contract  is  to  be  considered,  in  arriving  at  the  inten- 
tion of  the  parties.  A  contract  must  be  given  such  an 
interpretation  as  will  make  it  lawful,  operative,  definite, 
reasonable,  and  capable  of  being  carried  into  effect,  if  this 
can  be  done  without  a  violation  of  the  intention  of  the 
parties.  Words  used  in  a  contract  are  to  be  understood 
in  their  ordinary  and  popular  sense,  unless  used  by  the 
parties  in  a  technical  sense,  or  unless  a  special  meaning 
is  given  to  the  words  by  usage  or  custom.  A  contract  may 
be  explained  by  reference  to  the  circumstances  under  which 
it  was  made  and  the  matter  to  which  it  relates.  However 
broad  may  be  the  terms  of  a  contract,  it  extends  only  to 
those  things  which  it  appears  the  parties  really  intended  to 
include  in  it. 

Civil  Code,  Sections  1636,  1638,  1639,  1640,  1641,  1643, 
1644,  1647,  1648. 

Section  21.— PRINTED  AND  WRITTEN  PARTS  OF 
CONTRACT. — Where   a   contract   is   partly   written    and 
partly  printed,  the  written  parts  control  the  printed  par  is. 
Civil  Code,  Section  1651. 

Section  22.— TIME  OF  PERFORMANCE  OF  CON~ 
TRACT. — If  the  time  is  specified  in  the  contract  for  its 
performance,  the  stipulation  of  the  parties  will  control.  If 
no  time   is   specified,   the   law  allows   a   reasonable   time. 


44  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

What  is  a  reasonable  time  for  the  performance  of  a  con- 
tract depends  upon  the  circumstances  and  the  nature  of  the 
thing  to  be  done. 

Section  22a.— PLACE  OF  PERFORMANCE.— A  con- 
tract is  supposed  to  be  made  at  some  place,  and  the  place 
where  it  becomes  complete  is  the  place  where  it  is  made. 
If  a  contract  is  made  by  exchange  of  letters,  or  telegrams, 
it  is  held  to  have  been  made  at  the  place  where  the  letter 
is  mailed  or  telegram  filed,  containing  an  unconditional 
acceptance  by  one  party  of  the  offer  of  the  other.  If  the 
communications  are  oral,  either  with  or  without  telephone, 
between  parties  on  opposite  sides  of  a  county  line,  the  law 
deems  the  contract  to  have  been  made  in  the  county  where 
the  oiTer  of  one  is  accepted  by  the  other.  (Decided  by  the 
Supreme  Court  of  California,  in  the  case  of  Bank  of  Yolo 
vs.  The  Sperry  Flour  Company,  which  decision  is  printed 
in  Volume  XXVI,  California  Decisions,  page  936.) 

Section  22b.— THE  CARTWRIGHT  LAW.— (a)— The 
Terms  of  the  Law. — The  law  provides  : — 

"A  trust  is  a  combination  of  capital,  skill  or  acts  by  two 
or  more  persons,  firms,  partnerships,  corporations  or  asso- 
ciations of  persons,  or  of  any  two  or  more  of  them  for 
either,  any  or  all  of  the  following  purposes : — 

"L  To  create  or  carry  out  restrictions  in  trade  or  com- 
merce. 

"2.  To  limit  or  reduce  the  production,  or  increase  the 
price  of  merchandise  or  of  any  commodity. 

"3.  To  prevent  competition  in  manufacturing,  making, 
transportation,  sale  or  purchase  of  merchandise,  produce 
or  any  commodity. 

"4.  To  fix  at  any  standard  or  figure,  whereby  its  price  to 
the  public  or  consumer  shall  be  in  any  manner  controlled 
or  established,  any  article  or  commodity  of  merchandise, 
produce  or  commerce  intended  for  sale,  barter,  use  or  con- 
sumption in  this  state. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  45 

"5.  To  make  or  enter  into  or  execute  or  carry  out  any 
contracts,  obligations,  or  agreements  of  any  kind  or  de- 
scription, by  which  they  shall  bind  or  have  bound  them- 
selves not  to  sell,  dispose  of  or  transport  any  article  or 
any  commodity  or  any  article  of  trade,  use,  merchandise, 
commerce  or  consumption  below  a  common  standard  figure, 
or  fixed  value,  or  by  which  they  shall  agree  in  any  manner 
to  keep  the  price  of  such  article,  commodity  or  trans- 
portation at  a  fixed  or  graduated  figure,  or  by  which  they 
shall  in  any  manner  establish  or  settle  the  price  of  any 
article,  commodity  or  transportation  between  them  or  them- 
selves and  others,  so  as  to  directly  or  indirectly  preclude  a 
free  and  unrestricted  competition  among  themselves,  or  any 
purchasers  or  consumers  in  the  sale  or  transportation  of  any 
such  article  or  commodity,  or  by  which  they  shall  agree 
to  pool,  combine  or  directly  or  indirectly  unite  any  inter- 
ests that  they  may  have  connected  with  the  sale  or  trans- 
portation of  any  such  article  or  commodity,  that  its  price 
might  in  any  manner  be  afifected.  Every  such  trust  as  is 
defined  herein  is  declared  to  be  unlawful,  against  public 
policy  and  void." 

The  remainder  of  the  act  is  taken  up  with  provisions  for 
punishment  of  those  who  violate  the  law.  It  is  made  the 
duty  of  the  attorney-general  to  bring  suit  for  a  forfeiture 
of  the  charter  of  any  corporation  violating  the  law,  and 
to  enjoin  any  foreign  corporation  from  further  doing  busi- 
ness in  this  state ;  any  person  guilty  of  violating  the  law 
is  punishable  by  a  fine  of  not  less  than  fifty  dollars  nor 
more  than  five  thousand  dollars,  or  by  imprisonnient  not 
less  than  six  months  nor  more  than  one  year,  or  both  such 
fine  and  imprisonment;  and  each  day's  violation  of  the 
provisions  of  the  act  constitutes  a  separate  offense.  For 
each  day's  violation  of  the  law,  in  any  particular,  the  guilty 
person,  firm,  or  corporation  forfeits  fifty  dollars,  the  pay- 
ment of  which  may  be  compelled  by  the  attorney-general 
or  the  district  attorney.  Any  person  injured  in  his  business 
or  property  by  a  violation  of  the  law,  may  sue  for  damages, 


46  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

and  when  his  damages  are  ascertained,  may  be  given  judg- 
ment for  double  the  amount. 

(b)  Construction  and  Effect  of  the  Law. — It  seems  to 
me,  fi'om  the  letters  and  inquiries  I  have  received,  that  there 
is  a  very  general  misunderstanding  of  the  effect  of  the  law, 
and  of  the  construction  which  the  courts  will  give  it  when- 
ever it  is  tested  in  a  proper  way.  In  my  opinion,  the 
supreme  court  will  not  give  this  law  the  extreme  and  far- 
reaching  effect  which  many  business  men  have  been  led 
to  believe  was  intended.  The  impression  prevails  among 
many  that  under  the  terms  of  this  law  a  manufacturer 
cannot  fix  a  price  at  which  his  goods  must  be  sold;  that  a 
wholesaler  cannot  regulate  the  retail  price  of  any  article 
distributed  by  him,  although  thousands  of  dollars  and  years 
of  effort  may  have  been  expended  in  establishing  the  repu- 
tation and  demand  which  made  his  trademark  valuable ; 
that  any  article  of  trade  or  commerce  must  henceforth,  on 
penalty  of  violating  this  law,  be  subject  to  the  ruinous 
influences  of  retailers  who  may  cut  prices  below  cost  in 
order  to  get  or  retain  trade ;  and  that  a  producer,  manu- 
facturer, or  wholesaler  cannot  refuse  to  sell  his  product  or 
goods  to  any  person,  no  matter  what  sacrifice  or  loss  may 
follow.  In  my  opinion,  such  construction  of  the  law  would 
be  unreasonable,  and  the  supreme  court  of  California  will 
not  give  it  any  such  effect.  It  is  a  general  rule  that  courts 
will  give  to  a  law  only  a  reasonable  interpretation,  and 
one  that  will  do  justice  to  all. 

I  do  not  see  any  difficulty  in  interpreting  this  law  in  a 
reasonable  way.  The  intention  of  the  law  is  evident  on 
its  face.  It  was  iijtended  to  prohibit  combinations  of  per- 
sons, firms,  partnerships,  corporations  or  associations  by 
which  trade  or  commerce  shall  be  restrained  or  production 
limited,  or  competition  prevented,  or  the  price  fixed  of  an 
article  of  merchandise  or  produce,  to  the  injury  of  the 
public  at  large.  If  all  the  manufacturers  of  salt,  or  flour, 
for  instance,  should  enter  into  a  combination  and  arbi- 
trarily fix  the  selling  price,  so  as  to  deprive  the  public  of 


BUSINESS  CONTRACTS   AND   LEGAL   OBLIGATIONS.  47 

the  advantages  of  competition,  this  would  be  in  restraint 
of  trade,  and  a  violation  of  the  law.  Or,  if  all  the  manu- 
facturers of  lumber  in  California  should  enter  into  an  agree- 
ment that  they  would  shut  down  their  mills  for  six  months 
in  the  year,  and  thus  bring  up  the  price  of  lumber  to  a 
figure  which  would  be  oppressive  and  ruinous  to  the  public 
in  its  effect  upon  building  operations,  this  would  be  a  vio- 
lation of  the  intent  and  spirit  of  the  law.  But  the  law 
does  not  intend,  nor  would  the  legislature  have  the  power 
to  enact,  that  a  person  can  no  longer  do  with  his  own 
property  as  he  pleases.  Notwithstanding  the  Cartwright 
Law,  the  manufacturer  may  still  prescribe  the  price  at 
which  his  own  brand  of  a  particular  commodity  shall  be 
sold,  the  wholesaler  may  still  protect  the  standing  and 
trademark  of  any  particular  article  distributed  by  him  by 
fixing  the  retail  price,  the  producer  may  still  fix  the  price 
of  his  own  product,  and  any  owner  of  property  may  still 
have  the  right  to  select  his  own  customers. 

(c)  Amendments  of  1909.  —  The  Legislature  of  1909 
adopted  an  amendment  to  the  Cartwright  law,  providing 
"that  no  agreement,  combination  or  association  shall  be 
deemed  to  be  unlawful  or  within  the  provisions  of  this  act, 
the  object  and  business  of  which  are  to  conduct  its  opera- 
tions at  a  reasonable  profit  or  to  market  at  a  reasonable 
profit  those  products  which  can  not  otherwise  be  so  mar- 
keted; provided,  further,  that  it  shall  not  be  deemed  to  be 
unlawful,  or  within  the  provisions  of  this  act,  for  persons, 
firms  or  corporations,  engaged  in  the  business  of  selling  or 
manufacturing  commodities  of  a  similar  or  like  character, 
to  employ,  form,  organize  or  own  any  interest  in  e(ny  associ- 
ation, firm  or  corporation,  having  as  its  object  or  purpose 
the  transportation,  marketing  or  delivery  of  such  commod- 
ities." 

Two  new  sections  were  also  added  to  the  Cartwright  law, 
reading  as  follows :  "It  shall  be  lawful  to  enter  into 
agreements  or  form  associations  or  combinations,  the  pur- 
pose and  effect  of  which  shall  be  to  promote,  encourage  or 


48  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

increase  competition  in  any  trade  or  industry,  or  which  are 
in  furtherance  of  trade."     "Labor,  whether  skilled  or  un- 
skilled, is  not  a  commodity  within  the  meaning  of  this  Act." 
Act  of  the   Legislature,    1909,   approved   March   20, 
1909. 

Agreements   for   Sale 

Section  23.— KINDS  OF  AGREEMENTS  FOR  SALE. 

— An  agreement  for  sale  is  either  (1)  an  agreement  to  sell, 
(2)  an  agreement  to  buy,  or  (3)  a  mutual  agreement  to 
sell  and  buy.  The  difference  between  a  sale  and  an  agree- 
ment for  sale  is,  that  in  a  sale  the  subject  of  the  contract 
becomes  the  property  of  the  buyer  as  soon  as  the  contract 
is  concluded,  while  in  an  agreement  for  sale  the  title  to 
the  property  remains  in  the  vendor  until  the  contract  is 
executed.  An  agreement  to  buy  is  a  contract  by  which 
one  engages  to  accept  from  another  and  pay  a  price  for 
the  title  to  a  certain  thing.  An  agreement  to  sell  is  a 
contract  by  which  one  engages,  for  a  price,  to  transfer  to 
another  the  title  to  a  certain  thing.  An  agreement  to  sell 
and  buy  is  a  contract  by  which  one  engages  to  transfer 
the  title  to  a  certain  thing  to  another,  who  engages  to 
accept  the  same  from  him  and  to  pay  a  price  therefor.  Any 
property  which,  if  in  existence,  might  be  the  subject  of  sale, 
may  be  the  subject  of  an  agreement  for  sale,  whether  the 
property  itself  is  then  in  existence  or  not. 

Civil  Code,  Sections  1726,  1727,  1728,  1729,  1730. 

Section  24.— AGREEMENT  TO  SELL  REAL  PROP- 
ERTY.— An  agreement  to  sell  real  property  binds  the  seller 
to  execute  a  conveyance  in  form  sufficient  to  pass  the  title 
to  the  property.  No  agreement  for  the  sale,  of  real  prop- 
erty, or  any  interest  in  real  property,  is  valid,  unless  the 
agreement,  or  some  note  or  memorandum  of  its  terms,  be 
in  writing  and  subscribed  by  the  party  to  be  charged  or 
his  agent.  If  the  agreement,  or  the  note  or  memorandum 
of  it,  is  subscribed  by  the  agent  of  the  party,  it  is  necessary 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  49 

to  the  validity  of  the  instrument  that  the  agent's  authority 
from  his  principal  shall  be  in  writing,  also. 
Civil  Code.  Sections  1731,  1741. 

Section  24>^.— FORM  OF  AGREEMENT  TO  SELL 
REAL  PROPERTY.— Agreements  to  sell  real  property 
are  usually  prepared  in  the  form  of  a  bond  for  a  deed. 
The  following  form  will  be  sufficient  under  the  laws  of 
California : 

AGREEMENT   FOR   SALE   OF    REAL    ESTATE.— 

This  Agreement,  made,  and  entered  into  the 

day  of ,  190. . ,  between 

,  of  the  County  of 

,  State  of  California,  the  party  of  the  first 

part,  and 

of  the  same  place,  the  party  of  the  second  part,  witnesseth : 

That  the  said  party  of  the  first  part,  in  consideration  of 
the  covenants  and  agreements  on  the  part  of  the  said  party 
of  the  second  part  hereinafter  contained,  agrees  to  sell  and 
convey  unto  the  said  party  of  the  second  part,  and  said 
second  party  agrees  to  buy,  all  those  certain  lots  or  parcels 

of  land,  situate  in  the  County  of , 

State  ot  California,  bounded  and  described  as  follows,  to- 
wit : 

(Here  insert  description  of  property.) 
» 

for  the  sum  of Dollars,  lawful  money 

of  the  United  States ;  and  the  said  party  of  the  second  part, 
in  consideration  of  the  premises,  agrees  to  pay  to  the  said 

party  of  the  first  part,  the  said  sum  of 

Dollars,  in  gold  coin  of  the  United  States,  at  the  times 
and  in  the  amounts  as  follows,  to-wit : 

(Here  insert  terms  of  payments  agreed  upon.) 

It  is  agreed  that  all  deferred  payments  shall  bear  interest 

at  the  rate  of per  cent  p,er  annum,  payable 

semi-annually. 

And  the  said  party  of  the  second  part  agrees  to  pay  all 
State,  City,  and  County  taxes,  or  assessments  of  whatso- 
ever nature,  which  are  or  may  become  due  on  the  premises 
above  described. 


CO  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

In  the  event  of  a  failure  to  comply  with  the  terms  hereof 
by  the  said  party  of  the  second  part,  the  said  party  of  the 
first  part  shall  be  released  from  all  obligation  in  law  or 
equity  to  convey  said  property,  and  the  said  party  of  the 
second  part  shall  forfeit  all  right  thereto. 

Time  is  of  the  essence  of  this  contract. 

And  the  said  party  of  the  first  part,  on  receiving  such 
payment,  at  the  time  and  in  the  manner  above  mentioned, 
agrees  to  execute  and  deliver  to  the  said  party  of  the  second 
part,  or  to  his  assigns,  a  good  and  sufficient  deed  to  the 
premises  herein  described,  free  and  clear  of  encumbrances. 

And  it  is  understood  that  the  stipulations  aforesaid  are 
to  apply  to  and  bind  the  heirs,  executors,  administrators, 
and  assigns  of  the  respective  parties  hereto. 

IN  WITNESS  WHEREOF,  we  have  hereunto  set  our 
hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 

(If  the  above  agreement  is  intended  to  be  recorded,  it  must 
be  acknowledged.) 

Section  25.— AGREEMENT  TO  SELL  PERSONAL 
PROPERTY. — If  an  agreement  is  made  to  buy  or  sell  per- 
sonal property,  and  the  price  is  two  hundred  dollars  or 
over,  the  agreement  is  not  valid  unless  the  agreement  itself, 
or  some  note  or  memorandum  giving  its  terms,  is  in  writ- 
ing, and  subscribed  by  the  party  to  be  charged  or  his  agent. 
There  is  an  exception  to  the  law,  which  is  where  an  agree- 
ment is  made  to  manufacture  a  thing,  from  materials  to 
be  furnished  by  the  manufacturer  or  another  person. 
Civil  Code,  Sections  1739,  1740. 

Section  25^.— FORM  OF  AGREEMENT  TO  SELL 
PERSONAL  PROPERTY.— The  following  is  a  sufficient 
form  of  agreement  to  sell  personal  property: 

AGREEMENT  FOR  SALE  OF  PERSONAL  PROP- 
ERTY.— This  Agreement,  made  the day  of 

,  19 . . ,  between 

,  of  the  County  of 

State  of  California,  the  party  of  the  first  part,  and 


BUSINESS    CONTRACTS   AND   LEGAL   OBLIGATIONS.  51 

,  of  the  same 

place,  the  party  of  the  second  part,  witnesseth : 

That  the  said , 

the  party  of  the  first  part,  for  the  consideration  hereinafter 

mentioned,  agrees  to  sell  to  the  said 

,  the  party  of  the  second 

part,  the  following-described  personal  property,  situate  in 

the  County  of ,  State  of  California, 

to-wit : 

(Here  describe  the  property.) 

said  property  to  be  delivered  to  said  party  of  the  second 

part,  at  ,  on  or  before  the 

day  of ,19.. 

In  consideration  whereof,  the  said  

,  the  party  of  the 

second  part,  agrees  to  pay  to  the  party  of  the  first  part  the 

sum  of Dollars,  gold  coin  of  the 

United  States,  on  the  said day  of 

,  19.  .,  or  sooner  on  the  delivery  of  said  prop- 
erty as  aforesaid. 

IN  WITNESS  WHEREOF,  we  have  hereunto  set  our 
hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 

(If  agreement  is  to  be  recorded,  it  must  be  acknowledged.) 


Sale   of  Personal   Property 

Section  26.— WHEN  GOODS  SOLD  MUST  BE  DE- 
LIVERED.— One  who  sells  personal  property,  whether  it 
was  in  his  possession  at  the  time  of  sale  or  not,  must  put  it 
into  a  condition  fit  for  delivery,  and  deliver  it  to  the  buyer 
within  a  reasonable  time  after  demand.  This  rule  will  not 
apply  in  some  cases,  however,  where  the  seller  has  a  lien 
on  the  property.  Until  the  seller  does  put  the  goods  into 
a  condition  fit  for  delivery,  the  title  does  not  pass.  Title 
does  not  pass  when  the  property  sold  has  not  been  identi- 
fied, nor  when  something  remains  to  be  done  for  the  pur- 
pose of  ascertaining  the  price,  as  by  weighing,  measuring, 


52  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

or  testing  the  goods,  where  the  price  is  to  depend  upon 
the  quantity  or  quality  of  the  goods.  The  property  must 
be  delivered  within  a  reasonable  time  after  demand.  What 
is  a  reasonable  time  depends  upon  all  the  circumstances 
of  the  particular  transaction. 

Civil  Code,  Section  1753. 

Section  27.— WHERE  DELIVERY  MUST  BE  MADE. 

— In  the  absence  of  an  agreement  to  the  contrary,  the  place 
where  the  property  is  at  the  time  of  the  agreement  of  sale 
is  the  place  of  delivery ;  or  if  the  article  is  not  then  in  ex- 
istence, it  is  deliverable  at  the  place  where  it  is  manufac- 
tured or  produced. 

Civil  Code,  Section  1754. 

Section  28.— WHEN  PRICE  OF  GOODS  BOUGHT 
MUST  BE  PAID. — Unless  by  agreement  the  price  is  stip- 
ulated to  be  paid  at  a  different  time,  the  law  is  that  the 
buyer  must  pay  the  price  of  the  thing  sold  on  its  delivery, 
and  must  take  it  away  within  a  reasonable  time  after  the 
seller  offers  to  deliver  it.  Of  course,  the  buyer  and  seller 
may  agree  upon  any  terms  of  payment,  contrary  to  the 
provisions  of  the  law  stated  above.  After  personal  property 
has  been  sold,  and  until  the  delivery  is  completed,  the 
seller  must  keep  the  property  without  charge  until  the 
buyer  has  had  a  reasonable  opportunity  to  remove  it. 

Section  29.— RIGHT  TO  INSPECT  GOODS  BEFORE 
ACCEPTANCE. — On  an  agreement  for  sale  with  warranty 
the  buyer  has  a  right  to  inspect  the  thing  sold,  at  a  reason- 
able time,  before  accepting  it,  and  if  the  seller  refuse  to 
permit  the  buyer  to  make  a  reasonable  inspection  of  the 
thing  sold,  in  a  proper  manner  and  at  a  proper  time,  the 
buyer  may  rescind  the  contract  and  refuse  to  take  the  goods. 
Civil  Code,  Section  1785. 

Section  30.— EXPENSE    OF    TRANSPORTATION.— 

One  who  sells  personal  property  must  bring  it  to  his  own 


BUSINESS    CONTRACTS  AND   LEGAL   OBLIGATIONS.  53 

door,  or  to  some  other  convenient  place,  for  its  acceptance 
by  the  buyer,  but  further  transportation  is  at  the  risk  and 
expense  of  the  buyer. 

Civil  Code,  Section  1755. 

Section  31.— BUYER'S  DIRECTIONS  AS  TO  MAN- 
NER OF  SENDING  THINGS  SOLD.— If  a  seller  agrees 
to  send  the  thing  sold  to  the  buyer,  he  must  follow  the 
directions  of  the  latter  as  to  the  manner  of  sending,  or  it 
will  be  at  his  own  risk  during  its  transportation.  There- 
fore, if  the  buyer  directs  that  the  goods  be  shipped  by  a 
certain  line  or  lines  of  carriers,  the  seller,  if  he  desires  to 
avoid  the  risk  of  transportation,  must  obey  the  buyer's 
directions.  If  he  follows  such  directions,  the  transporta- 
tion is  at  the  risk  of  the  buyer.  Also,  if  there  are  no  special 
directions  by  the  buyer  as  to  the  manner  of  shipment,  and 
the  seller  uses  ordinary  care  in  forwarding  the  goods,  the 
transportation  is  at  the  buyer's  own  risk. 

Civil  Code,  Section  1757. 

Section  31a.— THE  BULK  LAW.— The  Legislature  of 
1903  passed  an  Act,  approved  by  the  Governor,  March  10, 
1903,  intended  to  prevent  the  fraudulent  sale  of  a  stock  in 
trade.  This  law  provides  that  the  sale,  transfer,  or  assign- 
ment of  a  stock  in  trade  (or  of  such  a  quantity  of  a  stock  in 
trade  as  to  be  substantially  the  whole  thereof),  in  bulk,  is  to 
be  conclusively  presumed  fraudulent  and  void,  as  against 
the  existing  creditors  of  the  vendor,  unless  notice  is  first 
given  by  the  vendor.  The  notice  must  be  in  writing,  and 
must  be  recorded  in  the  county  where  the  stock  of  goods  is 
located,  at  least  five  days  prior  to  the  sale  or  transfer.  If  the 
stock  is  located  in  two  or  more  counties,  the  notice  must  be 
recorded  in  each  county;  for  instance,  if  the  vendor  has  a 
store  in  Sonoma  County  and  a  store  in  Mendocino  County, 
and  intends  to  sell  or  transfer  the  stock  in  both,  he  must 
file  his  notice  in  the  office  of  the  County  Recorder  in  each 
county.    The  required  notice  must,  to  be  legal,  be  in  writing, 


54  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

and  must  state  the  name  and  address  of  the  vendor, 
transferrer,  or  assignor;  the  name  and  address  of  the  in- 
tended vendee,  transferee,  or  assignee;  a  general  statement 
of  the  character  of  the  property  or  merchandise  intend- 
ed to  be  sold,  transferred,  or  assigned;  the  time  and  place 
of  the  payment  of  the  purchase  price  agreed  upon ;  or, 
if  the  intended  sale  is  to  be  at  public  auction,  the  notice 
must  state  that  fact  in  addition,  with  the  time,  terms,  and 
place  of  such  sale.  The  sale  shall  in  no  event  occur  within 
five  days  of  the  date  when  the  notice  is  recorded.  The 
above  law  does  not  apply  to  the  sale  of  goods  in  the  ordi- 
nary course  of  trade  and  in  the  usual  method  of  business. 
It  is  intended  only  to  protect  the  wholesaler  against  the 
sale  or  transfer  or  assignment  by  the  retailer  of  his  stock 
of  goods  before  they  are  paid  for  by  him.  The  effect  of 
the  law  is  this :  If  a  stock  is  sold  without  the  notice,  the 
wholesaler  can  follow  the  goods,  and  recover  from  the 
vendee  whatever  damages  he  has  sustained  by  reason  of 
the  fraudulent  sale,  transfer,  or  assignment;  and  if  the 
notice  is  given,  the  wholesaler  will  have  an  opportunity  to 
protect  himself  by  suit  and  attachment  of  the  property 
within  the  five  days.  The  law  does  not  apply  to  a  case 
where  the  debtor  makes  an  assignment  of  the  property  for 
the  benefit  of  creditors  generally,  nor  does  it  apply  to  any 
sale,  transfer,  or  assignment  of  any  property  which  is  by 
law  exempt  from  execution.  For  a  list  of  property  exempt 
from  execution,  see  under  the  head  of  "Attachments." 
Statutes  of  1903,  p.  111. 

Section  31b.— BILL  OF  SALE.— A  bill  of  sale  need  not 
be  in  any  particular  form  to  be  valid.  _  It  is  not  essential 
to  its  validity  that  it  be  recorded,  although  it  may  be  for 
the  best  interests  of  all  parties  that  it  should  be  filed  for 
record.  A  bill  of  sale  is  not  required  to  be  acknowledged, 
if  it  is  not  to  be  recorded ;  but  it  must  be  acknowledged,  if 
it  is  to  be  recorded. 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  55 

Section  31c.— FORM  OF  BILL  OF  SALE.— The  fol- 
lowing is  a  form  of  bill  of  sale : — 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  I, 

> 

of  the  County  of ,  State  of  California,  the 

party  of  the  first  part,  for  and  in  consideration  of  the  sum 

of Dollars,  Gold  Coin  of  the  United 

States  of  America,  to  me  in  hand  paid  by 

,  of   ,  the  party 

of  the  second  part,  the  receipt  whereof  is  hereby  acknowl- 
edged, do  by  these  presents  grant,  bargain,  sell,  and  convey 
unto  the  said  party  of  the  second  part,  his  executors,  ad- 
ministrators, and  assigns,  the  following  described  personal 

property : 

(Here  describe  property  sold.) 

To  have  and  to  hold  the  same  to  the  said  party  of  the  sec- 
ond part,  his  executors,  administrators,  and  assigns  forever. 
And  I  do  for  myself,  my  heirs,  executors,  and  adminis- 
trators, covenant  and  agree  to  and  with  the  said  party  of  the 
second  part,  his  executors,  administrators,  and  assigns,  to 
warrant  and  defend  the  sale  of  said  property,  goods,  and 
chattels  hereby  made,  unto  the  said  party  of  the  second 
part,  his  executors,  administrators,  and  assigns,  against  all 
and  every  person  and  persons,  whomsoever,  lawfully  claim- 
ing or  to  claim  the  same. 

In  witness  whereof,  the  said  party  of  the  first  part  has 

hereunto  set  his  hand  and  seal,  the day  of 

190... 

(Seal.) 

Section  31d.— ADULTERATED,  MISLABELED  OR 
MISBRANDED  FOODS  AND  LIQUORS.— It  is  unlaw- 
ful to  brand  or  label  an  imitation  under  the  distinctive  name 
of  another  article  of  food ;  or,  to  label,  brand,  or  color,  so  as 
to  deceive  or  mislead  a  purchaser;  or,  to  put  up  a  domestic 
product  and  label  it  as  a  foreign  product ;  or,  to  fail  to  state 
on  packages  the  weight  or  measure,  plainly  and  correctly, 
when  goods  are  so  put  up  or  offered  for  sale ;  or,  if  the  label 
on  package  goods  contains  a  false  or  misleading  statement 
regarding  the  ingredients  or  the  substance  contained  there- 


56  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

in ;  or,  if  the  goods  put  up  are  an  imitation  or  adulteration, 
or  offered  for  sale  under  a  false  name  or  designation. 

Act  of  the  Legislature,  approved  February  22d,  1909. 

Section  31e.— COLD  STORAGE  EGGS  AND  POUL- 
TRY.— In  case  of  eggs  and  poultry,  if  they  have  been  kept 
or  packed  in  cold  storage,  or  otherwise  preserved,  they  must 
be  so  indicated  by  written  or  printed  label  or  placard,  plainly 
designating  such  fact,  when  offered  or  exposed  for  sale. 

Act  of  the  Legislature,  approved  February  22d,  1909. 

Section  31f.— SANITARY  REGULATION  OF  FOOD 
PRODUCING  ESTABLISHMENTS.  —  The  Legislature 
of  1909  passed  a  stringent  law  regulating  the  sanitary  con- 
dition and  operation  of  food  producing  establishments.  The 
law  provides  as  follows  : 

"Every  building,  room,  basement  or  cellar,  occupied,  or 
used  as  a  bakery,  confectionery,  cannery,  packinghouse, 
slaughterhouse,  restaurant,  hotel,  grocery,  meat  market,  or 
other  place  or  apartment,  used  for  the  production,  prepara- 
tion for  sale,  manufacture,  packing,  storage,  sale  or  dis- 
tribution of  any  food,  shall  be  properly  lighted,  drained, 
plumbed  and  ventilated,  and  conducted  with  strict  regard 
to  the  influence  of  such  conditions  upon  the  health  of  the 
operatives,  employees,  clerks  or  other  persons  therein  em- 
ployed, and  the  purity  and  wholesomenes.s  of  the  food 
therein  produced,  kept,  handled  or  sold ;  and  for  the  purpose 
of  this  act  the  term  "food"  shall  include  all  articles  used  for 
food,  drink,  confectionery  or  condiment,  whether  simple  or 
compound,  and  all  substances  and  ingredients  used  in  the 
preparation  thereof. 

"The  floors,  sidewalls,  ceilings,  furniture,  receptacles, 
utensils,  implements  and  machinery  of  every  establishment 
or  place  where  food  is  manufactured,  packed,  stored,  sold  or 
distributed,  shall  at  no  time  be  kept  in  an  unclean,  unhealth- 
ful  or  unsanitary  condition ;  and  for  the  purposes  of  this  act, 
unclean,  unhealthful  and  unsanitary  conditions  shall  be 
deemed   to   exist   if   food    in   the   process   of   manufacture. 


BUSINESS    CONTRACTS   AND   LEGAL   OBLIGATIONS.  57 

preparation,  packing,  storing,  sale  or  distribution  is  not 
securely  protected  from  flies,  dust,  dirt,  unsanitary  condi- 
tions, and  as  far  as  may  be  necessary,  by  all  reasonable 
means  from  all  other  foreign  or  injurious  contamination; 
and  if  the  refuse,  dirt,  and  the  waste  products  subject  to 
decomposition  and  fermentation  incident  to  the  manufac- 
ture, preparation,  packing,  storing,  selling  and  distributing 
of  food,  are  not  removed  daily;  and  if  all  trucks,  trays, 
boxes,  baskets,  buckets,  and  other  receptacles,  chutes,  plat- 
forms, racks,  tables,  shelves,  and  all  knives,  saws,  cleavers, 
and  all  other  utensils,  receptacles,  and  machinery,  used  in 
moving,  handling,  cutting,  chopping,  mixing,  canning,  and 
all  other  processes  used  in  the  preparation  of  food,  are  not 
thoroughly  cleaned  daily ;  and  if  the  clothing  of  operatives, 
employees,  clerks,  and  other  persons  therein  employed,  is 
unclean,  or  if  they  dress  or  undress,  or  leave  or  store  their 
clothing  therein. 

"The  side  walls  and  ceilings  of  every  bakery,  confection- 
ery, hotel  and  restaurant  kitchen,  shall  be  well  plastered,  or 
ceiled,  with  metal  or  lumber,  or  shall  be  oil  painted  or  kept 
well  lime  washed,  or  otherwise  kept  in  good  sanitary  con- 
dition ;  and  all  interior  woodwork  of  every  bakery,  confec- 
tionery, hotel  and  restaurant  kitchen,  shall  be  kept  well 
oiled  or  painted  with  oil  paint,  and  be  kept  washed  clean 
with  soap  and  water  or  otherwise  kept  in  a  good  sanitary 
condition ;  and  every  building,  room,  basement  or  cellar,  oc- 
cupied or  used  for  the  preparation,  manufacture,  packing, 
storage,  sale  or  distribution  of  food,  shall  have  an  imper- 
meable floor,  made  of  cement  or  tile  laid  in  cement,  brick, 
wood  or  other  suitable,  non-absorbent  material  which  can  be 
flushed  and  washed  clean  with  water. 

"The  doors,  windows  and  other  openings  of  every  food 
producing  or  distributing  establishment,  where  practicable, 
shall  be  fitted  with  stationary  or  self-closing  screen  doors 
and  wire  window  screens,  of  not  coarser  than  fourteen  mesh 
wire  gauze. 

"Every  building,  room,  basement  or  cellar,  occupied  or 
used   for  the  preparation,   manufacture,  packing,   canning, 


58  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

sale  or  distribution  of  food,  shall  have  convenient  toilet  or 
toilet  rooms,  separate  and  apart  from  the  room  or  rooms 
where  the  process  of  production,  manufacture,  packing,  can- 
ning, selling  or  distributing,  is  conducted.  The  floors  of 
such  toilet  rooms  shall  be  of  cement,  tile  laid  in  cement, 
wood,  brick  or  other  non-absorbent  material,  and  shall  be 
washed  and  scoured  daily.  Such  toilets  shall  be  furnished 
with  separate  ventilating  pipes  or  flues,  discharging  into 
soil  pipes,  or  on  the  outside  of  the  building  in  which  they  are 
situated.  Lavatories  and  washrooms  sHall  be  adjacent  to 
toilet  rooms,  and  shall  be  supplied  with  soap,  running  water 
and  towels,  and  shall  be  maintained  in  a  clean  and  sanitary 
condition.  Operatives,  employees,  clerks  and  all  persons 
who  handle  the  material  from  which  food  is  prepared,  or  the 
finished  product,  before  beginning  work  and  immediately 
after  visiting  a  toilet  or  lavatory  shall  wash  their  hands  and 
arms  thoroughly  in  clean  water. 

"Cuspidors,  for  the  use  of  operatives,  employees,  clerks 
and  other  persons,  shall  be  provided,  and  each  cuspidor  shall 
be  emptied  and  washed  out  daily  with  disinfectant  solution, 
and  not  less  than  five  ounces  of  such  solution  shall  be  left 
in  each  cuspidor  while  in  use.  No  operative,  employee, 
clerk  or  other  person,  shall  expectorate  or  discharge  any 
substance  from  his  nose  or  mouth,  on  the  floor  or  interior 
side  wall  of  any  building,  room,  basement,  or  cellar  where 
the  production,  manufacture,  packing,  storing,  preparation 
or  sale  of  any  food  product  is  conducted. 

"No  person  shall  be  allowed  to,  nor  shall  he,  reside  or 
sleep  in  any  room  of  a  bake  shop,  public  dining-room,  hotel 
or  restaurant  kitchen,  confectionery,  or  othfer  place  where 
food  is  prepared,  produced,  manufactured,  served  or  sold. 

"No  employer  shall  require,  permit  or  suffer  any  person  to 
work,  nor  shall  any  person  work,  in  a  building,  room,  base- 
ment, cellar,  place  or  vehicle,  occupied  or  used  for  the  pro- 
duction, preparation,  manufacture,  packing,  storage,  sale, 
distribution  or  transportation  of  food,  who  is  afflicted  or 
aflFected  with  any  venereal  disease,  small  pox,  diphtheria, 


BUSINESS   CONTKACTS   AND   LEGAL   OBLIGATIONS.  59 

scarlet  fever,  yellow  fever,  tuberculosis,  consumption,  bu- 
bonic plague,  Asiatic  cholera,  leprosy,  trachoma,  typhoid 
fever,  epidemic  dysentery,  measles,  rtiumps,  German  mea- 
sles, whooping-cough,  chicken  pox,  or  any  other  infectious 
or  contagious  disease. 

"The  members  of  the  State  Board  of  Health,  inspectors 
and  agents,  appointed  by  said  board,  and  all  local  health 
officers  and  inspectors,  shall  have  full  power  at  all  times  to 
enter  every  building,  room,  basement,  cellar,  or  any  place 
occupied  or  used,  or  suspected  of  being  occupied  or  used, 
for  the  production,  manufacture,  preparation,  storage,  sale 
or  distribution  of  food,  and  to  inspect  the  premises  and  all 
utensils,  implements,  receptacles,  fixtures,  furniture  and  ma- 
chinery used  as  aforesaid,  and  if,  upon  inspection,  any  such 
building,  room,  basement,  cellar,  or  any  such  place,  vehicle, 
employer,  operative,  employee,  clerk,  driver,  or  other  per- 
son, is  found  to  be  in  violation  or  violating  any  of  the  pro- 
visions of  this  act,  or  if  the  production,  preparation,  manu- 
facture, packing,  storing,  sale  or  distribution  of  food  is  be- 
ing conducted  in  a  manner  detrimental  to  the  health  of  the 
employees  or  operatives  or  to  the  character  or  quality  of  the 
food  therein  being  produced,  manufactured,  packed,  stored, 
sold,  distributed  or  conveyed,  the  officer  or  inspector  mak- 
ing the  examination  shall  at  once  make  a  written  report  of 
the  same  to  the  District  Attorney  of  the  county,  who  shall 
prosecute  all  persons  violating  any  of  the  provisions  of  this 
act,  and  also  to  the  State  Board  of  Health.  The  State  Board 
of  Health,  from  time  to  time,  as  in  its  discretion  it  may  de- 
termine, may  publish  such  reports  in  its  monthly  bulletin. 

"All  buildings,  rooms,  basements,  cellars,  and  other  places 
and  things,  kept,  maintained,  or  operated,  or  which  are,  in 
violation  of  the  provisions  of  this  act  or  any  of  them,  and  all 
food  produced,  prepared,  manufactured,  packed,  stored,  kept, 
sold,  distributed  or  transported,  in  violation  of  the  pro- 
visions of  this  act  or  an}"^  of  them,  are  hereby  declared  to  be 
public  nuisances,  dangerous  to  health.  Such  nuisances  may 
be  abated  or  enjoined,  in  an  action  brought  for  that  purpose 


60  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

by  the  local  or  State  Board  of  Health,  or  they  may  be  sum- 
marily abated  in  the  manner  provided  by  law  for  the  sum- 
mary abatement  of  public  nuisances  dangerous  to  health. 

"Any  person,  firm  or  corporation,  whether  as  principal  or 
agent,  employer  or  employe,  who  violates  any  of  the  pro- 
visions of  this  act  shall  be  guilty  of  a  misdemeanor,  and 
each  day  that  conditions  or  actions,  in  violation  of  this  act, 
shall  continue,  shall  be  deemed  to  be  a  separate  and  distinct 
offense,  and  for  each  offense,  upon  conviction,  he  shall  be 
punished  by  a  fine  of  not  less  than  twenty-five  dollars,  nor 
more  than  five  hundred  dollars,  or  shall  be  imprisoned  in  the 
county  jail  for  a  term  not  exceeding  six  months,  or  by  both 
such  fine  and  imprisonment." 

Act  of  the  Legislature,  approved  March  6th,  1909. 

Section  31g.— POISONOUS  CONFECTIONERY.— It  is 

unlawful  to  manufacture  or  offer  for  sale  any  confectionery 
containing  terra  alba,  barytes,  talc,  chrome  yellow,  or  other 
mineral  substance  or  poisonous  color  or  flavor,  or  other  in- 
gredient deleterious  or  detrimental  to  health,  or"  any  vinous, 
malt,  or  spirituous  liquor  or  compound  or  narcotic  drug. 
Act  of  the  Legislature,  approved  March  13th,  1909. 

Section  31h.  — MANUFACTURE  OR  SALE  OF 
STUFFED  FURNITURE.— All  persons  manufacturing  in 
this  State,  in  whole  or  in  part,  any  article  of  hotel,  boarding 
house,  lodging  house  or  domestic  or  office  furniture,  or  beds 
or  mattresses,  or  cushions,  used  or  intended  to  be  or  that 
could  be  used  by  human  beings,  that  are  stuffed  or  made  in 
whole  or  in  part,  with  material  composed  in  whole  or  in  part 
from  secondhand  or  cast  off  clothing,  rags,  or  secondhand, 
or  cast  off  material  of  any  character  whatever,  or  with  shod- 
dy, must  at  the  time  of  the  completion  of  such  manufacture 
attach  to  a  conspicuous  place  upon  each  of  such  articles  so 
manufactured  by  him,  a  label  or  stamp  showing  the  correct 
character  of  the  materials  with  which  the  cushion  portion  of 
such  articles  of  furniture  or  beds  or  cushions  or  mattresses 
are  stuffed;    and  no  person    so    manufacturing  any  such 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  61 

articles  shall  allow  the  same  or  any  thereof  to  leave  his  pos- 
session in  the  course  of  trade  or  business  unless  such  label  or 
stamp  is  so  affixed ;  and  no  person  shall  sell,  or  offer  for  sale, 
in  this  State  any  of  such  articles  of  furniture,  or  beds,  or 
mattresses,  or  cushions,  whether  the  .same  are  manufactured 
in  this  State  or  not,  unless  such  a  label  or  stamp  is  so  affixed. 
Any  person  violating  any  of  the  provisions  of  this  law  will 
be  guilty  of  a  misdemeanor,  and  upon  conviction  may  be 
punished  by  a  fine  of  not  less  than  fifty,  nor  more  than  five 
hundred  dollars,  or  imprisoned  not  more  than  six  months,  or 
by  both  such  fine  and  imprisonment. 

Act  of  the  Legislature,  approved  March  18th,  1909. 

Section  311.  — ADULTERATION  OF  DAIRY  PRO- 
DUCTS.— It  is  unlawful  to  sell  or  offer  for  sale  any  adulter- 
ated milk  or  other  dairy  products.  To  remove  all  doubt  as  to 
what  is  meant  by  the  term  "adulteration,"  the  Legislature 
has  prescribed  the  following  definitions : 

Milk  and  the  products  of  milk  shall  be  deemed  adulterated 
if  it  or  they  shall  not  conform  with  the  following  definitions 
and  standards : 

1.  Milk  is  the  fresh,  clean,  lacteal  secretion  obtained  by  the 
complete  milking  of  one  or  more  healthy  cows,  properly  fed 
and  kept,  excluding  that  obtained  within  fifteen  (15)  days 
before  and  five  (5)  days  after  calving,  and  contains  not  less 
than  three  (3.0)  per  cent  of  milk  fat,  and  not  less  than  eight 
and  five-tenths  (8.5)  per  cent  of  solids — not  fat,  and  from 
which  no  cream  or  fat  or  other  solid  component  has  been  re- 
moved. 

2.  Skim  milk  is  milk  from  which  a  part  or  all  of  the  cream 
has  been  removed  and  contains  not  less  than  nine  and  twen- 
ty-five hundredths  (9.25)  per  cent  of  milk  solids. 

3.  Condensed  milk  or  evaporated  milk  is  whole  milk  from 
which  a  consi(Jerable  portion  of  water  has  been  evaporated 
and  contains  not  less  than  twenty-four  and  five-tenths  (24.5) 
per  cent  of  milk  solids,  including  not  less  than  seven  and 
seven-tenths  {7 .7)  per  cent  milk  fat. 


62  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

4.  Sweetened  condensed  milk  is  whole  milk  from  which  a 
considerable  portion  of  water  has  been  evaporated  and  to 
which  sugar  (sucrose)  has  been  added,  and  contains  not  less 
than  twenty-four  and  five-tenths  (24.5)  per  cent  of  milk 
solids,  including  not  less  than  seven  and  seven-tenths  {7 .7) 
per  cent  milk  fat. 

5.  Condensed  skim  milk  is  skim  milk  from  which  a  con- 
siderable portion  of  water  has  been  evaporated. 

6.  Cream  is  that  portion  of  milk,  rich  in  milk  fat,  which 
rises  to  the  surface  of  milk  on  standing,  or  is  separated  from 
it  by  centrifugal  force,  is  fresh  and  clean,  and  contains  not 
less  than  eighteen  (18)  per  cent  of  milk  fat. 

7.  Evaporated  cream,  clotted  cream,  is  cream  from  which 
a  considerable  portion  of  water  has  been  evaporated. 

8.  Milk  fat,  butter  fat,  is  the  fat  of  milk  and  has  a  Reich- 
ert-Meissel  number  not  less  than  .905  (40  degrees  C). 

9.  Butter  is  the  clean,  non-rancid  product  made  by  gather- 
ing in  any  manner  the  fat  or  fresh  or  ripened  milk  or  cream 
into  a  mass,  which  also  contains  a  small  portion  of  the  other 
milk  constituents,  with  or  without  salt,  and  contains  not  less 
than  80  per  cent  of  milk  fat. 

Act  of  the  Legislature,  approved  April  22d,  1909. 

Section  31j.— FALSE    ADVERTISEMENTS.— It    is    a 

misdemeanor  to  publish  false  advertisements  in  newspapers, 
concerning  the  quantity,  quality,  value,  price,  or  the  method 
of  production  or  manufacture,  of  any  merchandise  in  this 
State. 

Act  of  the  Legislature,  approved  April  22d,  1909. 

Installment  Sales  of  Personal  Property 
Section  31k.  —  CONDITIONAL  SALES  OF  PER- 
SONAL PROPERTY.— Where  personal  property  is  de- 
livered, under  a  contract  for  payments  on  installments,  title 
to  remain  in  the  vendor  until  final  payment,  it  is  a  con- 
ditional sale.  The  title  to  the  property  does  not  pass  from 
the  vendor,  nor  vest  in  the  vendee,  until  the  contract  is 
completed  u]ion  the  payment  of  the  last  installment. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  63 

Section  311.— LANGUAGE    OF    THE    CONTRACT.— 

It  makes  no  difference  what  language  is  used  in  the  con- 
tract, if  the  intention  of  the  parties  is  to  be  seen,  that  the 
vendor  retains  the  title  until  the  money  is  paid.  The  paper 
may  be  called  a  "deed,"  or  "agreement,"  or  "lease,"  and 
the  designation  will  npt  affect  the  real  meaning  of  the 
contract.  It  is  only  a  conditional  sale,  no  more,  no  less, 
whatever  the  language  used  in  the  contract  may  be.  In 
the  case  of  Lundy  Furniture  Company  vs.  White,  our  Su- 
preme Court  said,  "Where  goods  were  delivered  under  a 
contract,  designated  as  a  lease,  providing  for  a  monthly 
rental,  and  that  the  consent  of  the  seller  should  be  neces-  . 
sary  for  removal  of  the  goods  from  the  purchaser's  resi- 
dence, and  reserving  title  in  the  seller  until  full  payment, 
after  which  a  bill  of  sale  was  to  be  given,  the  transaction 
was  a  conditional  sale,  and  the  title  remained  in  the  seller. 
The  name  by  which  the  parties  designate  their  contract 
is  not  determinative  of  its  nature.  The  calling  of  this 
agreement  a  'lease'  did  not  make  it  such.  The  payments, 
to  be  made  monthly  in  installments,  designated  'rent,' 
were  in  fact  nothing  but  partial  payments."  (Decided  by 
the  Supreme  Court  of  California,  in  the  case  of  Lundy 
Furniture  Company  vs.  White,  which  decision  is  printed 
in  Volume  126  of  the  California  Reports,  page  170.) 

Section  31m.— DEFAULT  IN  PAYMENTS.— It  is  the 
duty  of  the  vendee  to  make  payments  of  the  installments 
when  due.  He  has  no  right,  after  he  has  received  the 
property,  to  change  or  alter  in  any  way  the  terms  of 
payments.  If  he  does  not  pay  when  due,  this  will  amount 
to  a  default  on  his  part,  and  a  breach  of  the  contract,  for 
which  the  vendor  may  take  immediate  action. 

Section  31n.— SALE  BY  VENDEE  TO  ANOTHER 
PERSON. — The  party  receiving  the  property  has  no  right 
to  sell  it  until  the  purchase  price  is  paid.  If  the  vendee 
sells  the  property,  the  purchaser  from  him  obtains  no  title, 
and  the  original  vendor  may  recover  the  property.     The 


64  BUSINESS   LAWS  FOE  BUSINESS   MEN. 

second  vendee  is  not  entitled  to  stand  in  any  better  situa- 
tion than  his  vendor  in  regard  to  the  title  of  the  property. 
And  where  the  owner  of  a  piano  sold  it  on  the  installment 
plan,  with  the  condition  that  the  title  should  remain  in 
the  sellet"  until  final  payment,  and  the  vendee  sold  the 
piano  before  payment  of  the  final  installment,  the  Supreme 
Court  held  that  the  purchaser  from  him  got  no  title,  and 
the  true  owner  was  entitled  to  recover  his  property.  (De- 
cided by  the  Supreme  Court  of  California  in  the  case  of 
Kohler  vs.  Hayes,  which  decision  is  printed  in  Volume  41 
of  the  California  Reports,  page  445.) 

Section  31o.— REMEDY  OF  SELLER  IN  CASE  OF 
PURCHASER'S  DEFAULT.— If  the  purchaser  fails  to 
make  payments  as  they  accrue,  and  lets  the  installments 
or  any  of  them  go  by  default,  the  seller  has  either  one 
of  two  remedies:  (1)  He  may,  upon  the  default  of  the 
purchaser  in  meeting  the  stipulated  payments,  or  any  of 
them,  treat  the  contract  as  no  sale,  and  take  the  property 
into  his  own  possession  again.  If  he  is  prevented  by  the 
purchaser  from  retaking  the  property,  he  may  go  into 
court  and  recover  it  in  a  suit  on  claim  and  delivery.  (2) 
Or,  the  seller  may  treat  the  sale  as  an  absolute  one,  and 
bring  a  suit  to  recover  each  installment  as  default  is  made 
in  payment;  in  which  case,  other  property  of  the  seller 
(not  exempt  from  execution)  may  be  attached  and  levied 
upon  to  pay  the  judgment  obtained  against  him.  (Decided 
by  the  Supreme  Court,  in  the  case  of  Holt  Manufacturing 
Company  vs.  Ewing,  which  decision  is  printed  in  Volume 
109  of  the  California  Reports,  page  353.) 

Section  31p.— MONEY  ALREADY  PAID.— It  is  lawful 
for  the  contract  to  provide  that  all  installments  paid  before 
default  shall  be  forfeited  as  damages  for  the  use  of  the 
property,  or  as  rent,  and  such  conditions,  if  fairly  entered 
into,  will  be  enforced  by  the  law  of  California.  The  parties 
to  a  conditional  installment  sale  have  the  right  to  agree 
upon  a  certain  sum  as  damages,  which  is  called  "liquidated 


BUSINESS    CONTRACTS    AND    LEGAL   OBLIGATIONS.  65 

damages,"  to  belong  to  the  seller  in  case  of  default  on  the 
part  of  the  purchaser. 

Civil  Code,  Section  1671. 

Section  31q.— ABSOLUTE  SALE  ON  INSTALL- 
MENTS.— A  sale  of  personal  property,  the  purchase  price 
to  be  paid  in  installments,  may  be  made  without  any 
other  conditions.  In  this  case,  the  sale  is  absolute,  and 
passes  the  title  to  the  purchaser;  and  if  default  is  made, 
the  seller  has  no  right  to  retake  the  property;  but  he  may 
sue  and  put  an  attachment  on  the  property  for  the  pur- 
chase price. 

Section  31r.— FORM  OF  CONDITIONAL  AGREE- 
MENT.—The  following  is  a  good  form  of  agreement  for 
conditional  sale  of  personal  property : — 

San  Francisco,  Cal.,    ,   190. . . 

I  promise  to  pay  to   

,   Dollars,  at 

,  Cal.,  as  rent  for 

(Here  describe  property.) 

> 

as  follows : Dollars  before  delivery 

of  said  property  to  me,  and Dol- 
lars per  month  on  the    day  of  each  and  every 

month  thereafter,  commencing  on  the 

day  of ,  190. . .,  with  interest  on 

the  amount  unpaid  at  the  rate  of per  cent  per 

annum,  payable  monthly. 

I  acknowledge  the  receipt  of  said  property,  and  agree  that 
I  will  keep  the  same  in  good  order,  and  that  it  shall  not  be 

removed  from  No Street, 

in  the  City  of  ,  without  the 

written  consent  of  said 

,  and  do  also  agree  that  until  the  sum  of 

Dollars  with  interest,  as  aforesaid, 

*  IS  fully  paid,  said  property  is  the  property  of  said 

,  and  that  I  have  no 

right  to  dispose  thereof;   but  when  the  total  sum  of 

Dollars  and  interest  has  been  paid,  and 

not  until  then,  I  shall  receive  a  bill  of  sale  and  the  title  to 
said  property  shall  vest  in  me. 


66  BUSINESS   LAWS   FOE  BUSINESS   MEN. 

I  also  agree  that  if  I  fail  to  pay  any  of  said  installments 
when  due,  or  perform  any  of  the  aforesaid  conditions,  or 
said  property  be  attached  or  levied  upon,  all  of  said  sum  of 

Dollars  shall  in  any  of  said 

cases  immediately  become  due  and  payable,  and 

may  enforce  pay- 
ment of  the  entire  sum  then  unpaid  and  interest  thereon ; 
or  may,  if  he  so  elect,  rescind  this  executory  contract  and 
take  possession,  without  legal  process,  of  said  property,  and 
for  that  purpose  may  enter  any  premises  where  the  same 
may  be  (all  damages  for  said  entry  being  hereby  expressly 

waived)  ;  and  thereupon,  if  said 

shall  elect  to  rescind,  and  shall  retake  said 

property,  they  shall  refund  the  money  paid  by  me,  if  any 
remains,  after  deducting  a  rental  for  use  of  said  property 

of Dollars  per  month,  expenses  of 

taking  possession  and  removal,  and  twenty  per  cent  of  total 
.sum  to  be  paid  for  liquidated  and  assessed  damages,  which 
rental,  expenses,  and  damages  I  promise  and  agree  to  pay 

said Said 

rental  dating  from  delivery  of  said  property  to  me. 

In  all  matters  herein  mentioned,  time  is  declared  to  be 
the  essence  of  this  contract. 

,  Vendee. 

I  agree  to  the  terms  of  the  foregoing  contract. 

,  Vendor. 

Section  31s.— SELLING  AS  A  PLEDGE.— If  the  ven- 
dor, when  the  vendee  fails  to  pay  the  installments,  takes  the 
property  into  his  own  possession  again,  he  is  not  required 
to  keep  it ;  he  may  sell  it  as  a  pledge,  apply  the  proceeds 
upon  the  amount  due  him  from  the  buyer,  and  then  sue  the 
buyer  for  the  balance.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Matteson  vs.  Equitable  Mining 
and  Milling  Co.,  which  decision  is  printed  in  Volume  27, 
California  Decisions,  page  1024.) 

Stoppage  in   Transit 

Section  32.— WHEN  SELLER  OR  CONSIGNOR  MAY 
STOP  GOODS  IN  TRANSIT.— A  seller  or  consignor  of 
goods,  whose  claim  for  the  price  has  not  been  paid,  may 
stop  the  goods  while  on  their  way  to  the  buyer  or  consignee. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  67 

and  may  take  possession  of  the  goods.  He  may  do 
this  whenever  it  becomes  known  to  him,  after  parting 
with  the  property,  that  the  buyer  or  consignee  is  insolvent. 
A  person  is  insolvent,  in  the  meaning  of  the  law,  when  he 
ceases  to  pay  his  debts  in  the  manner  usual  with  persons 
of  his  business,  or  when  he  declares  his  inability  or  unwill- 
ingness to  pay  his  debts.  The  property  can  be  stopped 
only  by  notice  to  the  carrier  or  holder  of  the  goods,  or  by 
taking  actual  possession  of  the  goods.  As  the  taking  of 
actual  possession  will  be  ordinarily  impossible,  where  the 
goods  are  on  the  way  to  the  buyer  or  consignee  on  board 
cars  or  vessels,  a  notice  to  the  carrier  not  to  deliver  the 
goods  will  be  sufficient  to  stop  them;  and  if  the  carrier, 
notwithstanding  such  notice,  delivers  the  goods  to  the 
buyer  or  consignee,  the  carrier  will  be  liable  to  the  seller 
or  consignor  in  damages.  The  property  can  only  he 
stopped  while  in  transit.  The  transit  of  property  is  at  an 
end  when  it  comes  into  the  possession  of  the  consignee, 
or  into  the  possession  of  his  agent  to  receive  it.  There- 
fore, if  the  seller,  after  shipping  the  goods,  discovers  that 
the  consignee  is  insolvent  (that  he  has  ceased  to  pay  his 
debts  in  the  usual  manner,  or  has  declared  his  inability 
or  unwillingness  to  pay  his  debts),  he  must  act  promptly 
in  order  to  stop  the  goods,  and  must  give  notice  to  the 
carrier  not  to  make  delivery.  The  sale  of  the  goods  is 
not  rescinded  by  stopping  them  in  transit.  The  seller 
simply  resumes  his  ^'endor's  lien  for  the  price  of  the  goods, 
and,  if  the  consignee  comes  forward  and  pays  the  sum  due 
on  the  purchase  price,"  the  goods  must  be  released  and 
allowed  to  proceed  on  their  way.  The  seller,  by  stopping 
the  goods  in  transit,  does  not  become  again  the  owner. 
He  has  parted  with  the  title,  but  he  again  comes  into  pos- 
session, and  holds  the  goods  for  the  unpaid  price.  The 
carrier,  after  notice  to  stop,  must  deliver  the  goods  to  the 
vendor,  and  the  vendor  will  then  hold  the  property  until 
the  expiration  of  the  credit  given,  and  may  then  proceed  to 
give  notice  and  sell  them  again. 

Civil  Code,  Sections  3076,  3077,  3078,  3079,  3080. 


68  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Section  33.— RESALE  OF  PERSONAL  PROPERTY. 

— There  has  been  some  controversy  in  the  courts  as  to  the 
manner  of  reselling  personal  property  held  under  a  ven- 
dor's lien,  but  the  safer  method  is  to  give  written  notice 
to  the  vendee,  and  publish  notice  to  the  public,  of  the  time 
and  place  of  sale,  and  then  to  sell  the  goods  at  public 
auction.  No  particular  form  of  notice  need  be  employed, 
as  any  words  or  form  will  be  sufficient  which  describes 
the  goods,  the  time  and  place  of  sale,  and  the  manner  and 
terms  of  the  sale. 

Section  34.— WHAT  WILL  DEFEAT  VENDOR'S 
RIGHT  TO  STOP  GOODS.— The  right  of  stoppage  in 
transit  belongs  only  to  one  occupying  in  some  way  the 
relation  of  vendor  toward  the  consignee  of  the  goods. 
And  where  the  goods  are  transferred  by  the  vendee  to  a 
bona  fide  purchaser  for  value,  this  will  defeat  the  vendor's 
right  to  stop  the  goods.  Where  the  buyer  has  possession 
of  the  bill  of  lading,  with  the  consent  of  the  seller,  and 
indorses  it  to  a  bona  fide  purchaser  of  the  goods, — to  one 
who  has  no  notice  of  the  seller's  claim  or  the  buyer's  in- 
solvency, and  who  pays  value  for  the  goods, — this  will  de- 
feat the  right  to  stop  the  goods.  The  consignee  may  inter- 
cept the  goods  on  the  way,  and  take  possession  of  them 
at  a  different  station  or  place  from  that  of  their  destina- 
tion, and  the  consignor's  right  of  stoppage  will  be  lost. 

Warranty  of  Personal  Property 

Section  35.— WARRANTY  OF  TITLE.— A  warranty  is 
an  engagement  by  which  a  seller  assures  to  a  buyer  the 
existence  of  some  fact  afifecting  the  transaction,  whether 
past,  present,  or  future.  A  warranty  of  the  character,  con- 
dition, or  quality  of  personal  property  arises  from  con- 
tract, either  express  or  implied.  The  parties  may  expressly 
state  the  warranty  they  agree  upon,  or  a  warranty  may 
arise  by  reason  of  some  obligation  which  the  law  imposes 
upon  the  parties  or  the  circumstances.    One  who  sells  personal 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  69 

property  as  his  own  thereby  warrants  that  he  has  a  good 
and  unencumbered  title  to  the  property.     The  law  implies 
this  warranty  from  the  fact  of  sale. 
Civil  Code,  Section  1765. 

Section  36.— WARRANTY   ON   SALE  BY   SAMPLE. 

— One  who  sells  or  agrees  to  sell  goods  by  sample  thereby 
warrants  the  quality  of  the  bulk  to  be  equal  to  that  of  the 
sample.  Where  goods  are  sold  by  sample,  and  the  articles 
are  inferior  to  the  sample  shown,  the  purchaser  is  not  bound 
to  accept  the  goods,  for  that  would  be  to  force  upon  him 
goods  of  a  different  quality  from  that  which  he  bargained 
for.  In  a  sale  by  sample  the  law  implies  a  warranty  that 
the  bulk  of  the  property  sold  is  equal  to  the  sample  exhib- 
ited. This  warranty  constitutes  a  condition  of  the  contract 
of  sale,  and  in  such  case  the  delivery  of  the  goods  to  the 
carrier  for  transportation  to  the  buyer  does  not  have  the 
efifect  of  passing  title  to  the  buyer.  In  order  that  the  deliv- 
ery of  the  goods  to  the  carrier  shall  operate  to  pass  the  title 
to  the  consignee,  it  is  essential  that  the  goods  so  delivered 
shall  conform  in  quantity  and  quality  with  the  order  given 
for  them.  If,  therefore,  the  vendor  sends  more  or  less  than 
the  quantity  ordered,  or  of  a  different  quality,  the  title  will 
not  pass  unless  the  purchaser  accepts  them.  (Decided  by 
the  Supreme  Court  of  California  in  the  case  of  Gardiner  vs. 
McDonogh,  which  decision  is  printed  in  Volume  28,  Cali- 
fornia Decisions,  page  776.) 

Civil  Code,  Section  1766. 

Section    37.— WARRANTY     ON     AGREEMENT    TO 
SELL     MERCHANDISE    NOT     IN     EXISTENCE.— A 

person  may  agree  to  sell  merchandise  not  then  in  existence, 
but  he  thereby  warrants  that  it  shall  be  sound  and  mer- 
chantable at  the  place  of  production  contemplated  by  the 
parties ;  and  the  seller  also  warrants  that  such  merchandise, 
when  delivered,  shall  be  as  nearly  sound  and  merchantable 
at  the  place  of  delivery  as  can  be  secured  by  reasonable 

care. 

Civil  Code,  Section  1768. 


70  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  38.— MANUFACTURER'S  '  WARRANTY 
AGAINST  DEFECTS.— One  who  sells  or  agrees  to  sell 
an  article  of  his  own  manufacture  thereby  warrants  it  to 
be  free  from  any  latent  defect,  not  disclosed  to  the  buyer, 
arising  from  the  process  of  manufacture ;  and  also  that 
neither  he  nor  his  agent  in  such  manufacture  has  know- 
ingly used  improper  materials  therein ;  and  one  who  manu- 
factures an  article,  under  an  order  for  a  particular  purpose, 
warrants  by  the  sale  that  it  is  reasonably  fit  for  that  pur- 
pose ;  so,  if  it  turns  out  either  that  the  article  manufactured 
is  defective,  which  defect  was  not  apparent  or  disclosed 
to  the  buyer,  or  that  the  article  is  not  reasonably  fit  for 
the  purpose  for  which  it  was  ordered,  the  buyer  has  the 
right  to  rescind  the  sale,  by  returning  or  offering  to  return 
the  article  to  the  manufacturer. 

Civil  Code,  Section  1769,  1770. 

Section  39.— WARRANTY  OF  SOUNDNESS.— One 
who  sells  or  agrees  to  sell  merchandise  not  open  to  the  ex- 
amination of  the  buyer  thereby  warrants  that  such  mer- 
chandise is  sound  and  merchantable. 

Section  40.— WARRANTY  BY  TRADE-MARKS  AND 
OTHER  MARKS.— One  who  sells  any  article  to  which 
there  is  affixed  a  trade-mark  thereby  warrants  it  to  be 
genuine  and  lawfully  used.  And  one  who  sells  any  article 
with  a  statement  or  mark  upon  it,  or  attached  to  it,  ex- 
pressing the  quantity  or  quality  of  the  article,  or  stating 
the  place  where  it  was  manufactured,  thereby  warrants  the 
truth  of  such  representations. 

Civil  Code,  Sections  1772,  1773. 

(a) — "Trade-Mark"  Defined. — The  phrase  "trade-mark," 
as  used  in  Section  40,  includes  every  description  of  word, 
letter,  device,  emblem,  stamp,  imprint,  brand,  printed  ticket, 
label,  or  wrapper,  usually  affixed  by  any  mechanic,  manu- 
facturer, druggist,  merchant,  or  tradesman,  to  denote  any 
article  to  be  goods  imported,  manufactured,  produced,  com- 
pounded, or  sold  by  him ;   and  also  any   name  or  names, 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  71 

marks  or  devices,  branded,  stamped,  engraved,  etched, 
blown,  or  otherwise  attached  or  produced  upon  any  cask, 
keg,  bottle,  vessel,  siphon,  can,  case,  or  package,  used  by 
any  mechanic,  manufacturer,  druggist,  merchant,  or  trades- 
man, to  hold,  contain  or  enclose  the  goods  so  imported, 
manufactured,  produced,  compounded,  or  sold  by  him. 
Political  Code,  Section  3196. 

(b) — Recording  Trade-Marks. — Any  person  may  record 
any  trade-mark  or  name  by  filing  with  the  secretary  of  state 
his  claim  to  the  same,  and  a  copy  or  description  of  such 
trade-mark  or  name,  Avith  his  affidavit  attached  thereto, 
setting  forth  that  he  (or  the  firm  or  corporation  of  which 
he  is  a  member)  is  the  exclusive  owner,  or  agent  of  the 
owner,  of  such  trade-mark  or  name.  The  secretary  of  state 
must  keep  for  public  examination  a  record  of  all  trade- 
marks or  names  filed  in  his  office,  with  the  date  when  filed 
and  name  of  claimant. 

Political  Code,  Sections  3197,  3198. 

(c) — Assignment  of  Trade-Mark. — Any  person  who  has 
first  adopted  and  used  a  trade-mark  or  name,  whether 
within  or  beyond  the  limits  of  this  state,  is  its  original 
owner.  Such  ownership  may  be  transferred  and  assigned 
in  the  same  manner  as  personal  property,  by  bill  of  sale. 
Political  Code,  Section  3199. 

(d) — Protection  of  Trade-Marks. — The  law  will  protect 
the  owner  of  a  trade-mark  in  his  exclusive  use  of  the  same. 
The  superior  court  will  restrain,  by  injunction,  any  use  of 
trade-marks,  or  names,  which  have  been  recorded  with  the 
secretary  of  state  by  the  owner,  where  such  trade-marks 
or  names  are  used  by  any  person  not  entitled  thereto.  The 
Secretary  of  State  must  issue  to  the  claimant,  at  the  time  the 
claim  is  filed,  a  certificate  of  filing  under  the  great  seal  of 
the  State,  and  must  then  collect  from  the  claimant  a  fee  of 
five  dollars.     The  Secretary  of  State  must,  however,  refuse 


72  BUSINESS  LAWS  FOE  BUSINESS   MEN, 

to  file  any  trade-mark  or  name  identical  with,  or  so  similar 
to  any  trade-mark  or  name  already  filed  as  to  be  calculated 
or  liable  to  deceive. 

Political  Code,  Section  3199;  Act  of  the  Legislature, 
approved  March  6th,  1909. 

Section  41.— WARRANTY    OF    PROVISIONS    FOR 
DOMESTIC  USE.— By  a  sale  of  provisions  for  domestic 
use,   for   immediate   consumption,   there   is   warranty   that 
the  provisions  are  sound  and  wholesome. 
Civil  Code,  Section  1775. 

Section    42.— WARRANTY    ON     SALE     OF     GOOD 
WILL  OF  BUSINESS.— One  who  sells  the  good  will  of 
a  business  thereby  warrants  that  he  will  not  endeavor  to 
draw  off  any  of  the  customers. 
Civil  Code,  Section  1776. 

Section  42a.— DAMAGES  ALLOWED  ON  BREACH 
OF  WARRANTY. — The  general  rule  is,  damages  in  case  of 
a  breach  of  warranty  of  quality,  of  personal  property  sold, 
are  to  be  estimated  with  reference  to  values  at  the  time  and 
place  of  delivery.  But  where  personal  property  is  sold  on  a 
warranty,  to  be  used  at  some  place  other  than  the  place  of 
sale  and  delivery,  and  it  is  known  to  the  seller  that  the 
property  is  bought  for  use  at  another  place,  the  damages  for 
breach  of  the  warranty  may 'be  estimated  with  reference  to 
values  at  the  place  where  the  property  is  to  be  used,  P.  F. 
Dundon  sold  two  boilers  at  San  Francisco  to  be  used  in 
Siberia,  and  warranted  that  they  would  develop  a  certain 
horsepower.  The  boilers  were  constructed  at  San  Francisco 
under  a  contract  which  required  them  to  be  delivered  at  the 
wharf  in  San  Francisco,  but  it  was  understood  by  both 
parties  that  the  boilers  were  to  be  sent  to  and  used  on  the 
Amoor  river  in  Siberia,  13,000  miles  from  San  Francisco. 
When  they  were  set  up  and  used  in  Siberia  they  were  found 
to  fall  short  of  the  warranty,  and  could  not  develop  sufficient 
power  for  the  purpose  for  which  they  were  bought.     The 


BUSINESS    CONTRACTS    AND    LEGAL    OBLIGATIONS.  73 

purchaser  sued  for  damages,  and  the  Superior  Court  of  San 
Francisco  gave  him  a  judgment  against  Dundon  for  $7,200, 
the  price  paid  for  the  boilers,  which  would  have  been  their 
value  in  Siberia  if  constructed  so  as  to  do  the  warranted 
work.    The  Court  of  Appeals  has  affirmed  the  judgment. 

(Decided  by  the  California  District  Court  of  Appeals,  in 
the  case  of  Krasilnikoff  vs.  Dundon,  which  decision  is 
printed  in  Appellate  Decisions,  volume  VII,  page  7.) 

Auction  Sales 

Section    43.— AUTHORITY     OF     AUCTIONEER.— A 

sale'  by  auction  is  a  sale  by  public  outcry  to  the  highest 
bidder  on  the  spot.  Laws  have  been  passed  by  the  Legis- 
lature of  California  to  regulate  the  authority  of  auctioneers, 
and  the  rights  of  bidders,  and  the  manner  of  conducting 
auction  sales.  An  auctioneer,  by  the  law  of  California, 
without  special  authorization,  has  authority  from  the  seller 
only  to  the  extent  that  he  may  sell  by  public  auction  to 
the  highest  bidder ;  to  sell  for  cash  only,  except  such  arti- 
cles as  are  usually  sold  on  credit  at  auction ;  to  warrant  the 
title  of  his  principal  to  personal  property  sold  by  him,  and 
the  quality  and  quantity  of  the  property;  to  prescribe  rea- 
sonable rules  and  terms  of  sale;  to  deliver  the  things  sold 
upon  payment  of  the  price ;  to  collect  the  price ;  and  to  do 
whatever  else  is  necessary,  or  proper  and  usual  in  the 
ordinary  course  of  business,  for  effecting  these  purposes. 
An  auctioneer  will  be  deemed  to  have  authority  from  a 
bidder  at  the  auction,  as  well  as  from  the  seller,  to  bird 
both  seller  and  bidder  by  a  memorandum  of  the  contract, 
whenever  by  law  the  sale  must  be  evidenced  by  a  memo- 
randum in  writing. 

Civil  Code,  Sections  1792,  2362,  2363. 

Section    44.— WHEN     AUCTION     SALE     IS     COM- 
PLETE.— A  sale  by  auction  is  not  complete  until  the  auc- 
tioneer publicly  announces,  by  the  fall  of  his  hammer,  or 
in  some  other  customary  manner,  that  the  thing  is  sold. 
Civil  Code,  Section  1793. 


74  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  45.— WITHDRAWAL  OF  BIDS.— Until  the 
public  announcement  necessary  to  complete  the  sale  is 
made  by  the  auctioneer,  any  bidder  may  withdraw  his  bid. 
The  only  thing  necessary  to  do  in  withdrawing  a  bid  is  to 
notify  the  auctioneer  that  the  bid  is  withdrawn,  before  the 
final  announcement  of  the  sale. 
Civil  Code,   Section   1794. 

Section  46.— AUCTION    SALE    UNDER    WRITTEN 

CONDITIONS. — Whenever  an  auction  sale  is  made  under 
written  or  printed  conditions,  the  auctioneer  must  follow 
such  conditions,  and  has  no  power  to  change  them  by  any 
oral  declaration,  except  that  he  may  modify  a  condition 
intended  for  his  own  benefit. 

Civil  Code,  Section  1795. 

Section  47.— AUCTION  SALE  WITHOUT  RE- 
SERVE.— Public  policy  requires  that  auction  sales  shall 
be  conducted  with  the  highest  good  faith,  and  that  neither 
the  auctioneer  nor  his  principal  shall  be  allowed  to  deceive 
or  impose  upon  the  persons  who  gather  at  an  auction  for 
the  purpose  of  making  bids.  It  is  therefore  provided  by 
the  law,  for  the  protection  of  the  bidder,  that  at  a  sale  by 
auction,  announced  to  be  without  reserve,  the  highest  bid- 
der in  good  faith  has  an  absolute  right  to  the  completion 
of  the  sale  to  him.  Upon  such  a  sale  bids  by  the  seller,  or 
bids  by  any  agent  for  him,  are  absolutely  void.  The  pub- 
lic is  interested  in  seciiring  the  advantages  of  fair  and  just 
competition  among  bidders,  and  in  the  prevention  of  favor- 
itism or  fraud  in  any  form.  The  highest  bidder  in  good 
faith,  at  a  sale  without  reserve,  is  entitled  to  the  property ; 
and,  if  it  shoijld  appear  that  the  property  was  in  reality 
knocked  down  by  the  auctioneer  upon  a  higher  but  fraud- 
ulent bid  in  the  interest  of  the  seller,  a  suit  can  be  main- 
tained in  the  Superior  Court  to  compel  the  recognition  of 
the  rights  of  the  bidder  in  good  faith,  and  the  delivery  of 
the  property  to  him  upon  payment  of  the  amount  of  his 
bid. 

Civil  Code,  Section  1796. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  75 

Section  48.— FRAUDS  UPON  THE  BUYER.— Some- 
times the  seller,  for  the  purpose  of  increasing  the  price  of 
the  property  sold  at  auction,  will  employ  puffers  to  bid  up 
the  property,  thus  giving  it  a  fictitious  value,  and  often 
inducing  credulous  bidders  to  increase  their  bids  beyond 
what  they  had  any  idea  of  offering.  The  law  provides, 
without  any  qualification,  that  the  employment  of  puffers 
at  an  auction  sale  by  the  seller,  without  the  knowledge 
of  the  buyer,  is  a  fraud  upon  the  buyer,  which  entitles  him 
to  rescind  his  purchase. 

Civil  Code,  Section  1797. 

Section  49.— AUCTIONEER'S  MEMORANDUM  OF 
SALE  BINDS  BOTH  PARTIES.— When  property  is 
sold  by  auction,  an  entry  made  by  the  auctioneer  in  his 
sale  book,  at  the  time  of  the  sale,  giving  the  names  of  the 
person  for  whom  he  sells  and  the  buyer,  and  describing  the 
thing  sold,  the  price,  and  the  terms  of  sale,  binds  both  the 
seller  and  the  buyer,  in  the  same  manner  as  though  the 
memorandum  had  been  made  by  themselves. 
Civil  Code,  Section  1798. 

Deposit  of  Personal  Property 

Section  50.— DEPOSIT  FOR  SAFE  KEEPING.— The 

obligations  of  one  who  receives  personal  property  on 
deposit  are  fixed  by  statute.  When  personal  property  is 
deposited  with  one  for  safe  keeping,  the  person  receiving 
the  deposit  is  bound  to  return  the  identical  thing  deposited 
with  him ;  he  is  bound  to  use  ordinary  care  in  the  safe 
keeping  of  the  property,  and  if,  by  his  gross  carelessness 
or  neglect,  the  thing  deposited  with  him  is  lost  or  injured, 
he  is  liable  to  the  depositor  for  its  value. 

Section  51.— DEPOSIT  FOR  EXCHANGE.— A  de- 
posit for  exchange  is  one  in  which  the  depositary  is  bound 
to  return  to  the  depositor,  not  the  identical  thing  deposited, 
but  something  corresponding  in  kind  to  it.  Where  money 
is  received  on  deposit,  or  any  article  which  is  mingled  with 


76  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  depositary's  property  of  a  like  kind,  and  not  expected 
to  be  returned  to  the  depositor  in  the  identical  thing  de- 
posited, the  depositor  becomes  a  creditor  of  the  other  party, 
to  the  amount  of  the  money  or  value  of  other  property 
deposited. 

Civil  Code,  Sections  1818,  1878. 

Section  52. —OBLIGATIONS  OF  THE  DEPOSI- 
TARY.— The  depositary  must  deliver  the  property  to  the 
person  for  whose  benefit  it  was  deposited,  on  demand,  un- 
less he  has  a  lien  upon  it.  He  is  not  bound  to  deliver  the 
property  without  a  demand  being-  made  for  it,  even  where 
the  deposit  is  made  for  a  specified  time.  A  depositary  must 
deliver  the  thing  deposited  at  his  residence  or  place  of 
business,  as  may  be  most  convenient  for  him.  If  a  thing 
deposited  is  owned  jointly  or  in  common,  by  persons  who 
cannot  agree  upon  the  manner  of  its  delivery,  the  deposi- 
tary may  deliver  to  each  his  proper  share,  if  this  can  be 
done  without  injury  to  the  thing  deposited. 

Civil  Code,  Sections  1822,  1823,  1824,  1827. 

Section  53.— THINGS  WHICH  WILL  EXCUSE  DE- 
LIVERY.— There  are  some  circumstances  which  will  ex- 
cuse delivery,  even  after  demand  is  made.  A  third  person 
may  claim  to  be  the  real  owner  of  the  property,  and  estab- 
lish his  claim  by  law;  or  litigation  may  ensue  between  the 
depositor  and  another  person  claiming  to  be  the  real  owner 
of  the  property,  in  which  the  court  will  enjoin  the  delivery 
or  take  the  property  into  its  own  hands  pending  the  litiga- 
tion. Whenever  any  proceedings  are  taken  adverse  to  the 
interest  of  the  depositor,  or  adverse  to  the  interest  of  the 
person  for  whose  benefit  the  deposit  was  made,  the  person 
who  received  the  deposit  must  give  prompt  notice  of  such 
proceedings  to  the  depositor  or  other  person  beneficially 
interested.  The  depositary  may  also  acquire  a  lien  upon 
the  property,  which  will  excuse  delivery;  and  generally  he 
will  have  a  lien  upon  the  property,  when  he  has  performed 
services   about   the   property,   or   incurred    expense    in    its 


BUSINESS   CONTRACTS  AND  LEGAL  OBLIGATIONS.  77 

keeping  or  preservation,  for  the  value  of  his  services  and  the 
amount  of  his  expenses, 

A  depositary  for  hire  has  a  lien  for  storage  charges  and 
for  advances  and  insurance  incurred  at  the  request  of  the 
bailor,  and  for  money  necessarily  expended  in  and  about 
the  care,  preservation  and  keeping  of  the  property  stored, 
and  he  also  has  a  lien  for  money  advanced  at  the  request  of 
the  bailor,  to  discharge  a  prior  lien,  and  for  the  expenses  of 
a  sale  where  default  has  been  made  in  satisfying  a  valid 
lien. 

Act  of  the  Legislature,  approved  April  19th,  1909. 

(a)— SALE  OF  PERSONAL  PROPERTY.— The  sale 
by  a  pledgee,  of  property  pledged,  must  be  made  by  public 
auction,  in  the  same  manner  as  a  sale  of  personal  property 
under  execution.  Written  notice  must  be  posted  in  three 
public  places  in  the  township  or  city  where  the  sale  is  to 
take  place,  for  not  less  than  five  days  nor  more  than  ten 
days. 

Code  of  Civil  Procedure,  Section  692. 

Storage  of  Personal  Property 

Section  54. — STORAGE. — Where  a  person  deposits  per- 
sonal property  with  another  and  agrees  to  pay  him  a  com- 
pensation, it  is  called  storage.  Under  this  designation  is 
included  a  variety  of  business  transactions  wherein  one  per- 
son takes  charge  and  custody  of  the  goods  of  another  for 
hire. 

Section  55.— CARE  TO  BE  TAKEN  OF  THING  DE- 
POSITED.— One  who  takes  goods  on  storage  for  hire  must 
use  at  least  ordinary  care  for  their  preservation,  and  is  liable 
for  damages  by  reason  of  failure  to  perform  his  obligation 
in  this  respect. 

Storage  in  Warehouses 

Section  56.— WAREHOUSE  RECEIPTS.— The  most 
common  form  of  storage  known  to  business  is  that  where 


78  BUSINESS  LAWS   FOB  BUSINESS   MEN. 

the  owner  of  a  warehouse  receives  property  on  storage  for 
a  stated  compensation.  The  warehouseman,  upon  receiv- 
ing the  property,  must  give  a  receipt  for  it,  which  receipt 
must  show  on  its  face  that  a  contract  for  storage  has  been 
entered  into  between  the  owner  of  the  goods  and  the  ware- 
houseman, the  latter  to  store  the  goods,  and  the  former  to 
pay  for  that  service.  A  warehouseman  cannot  issue  any 
valid  receipt  for  any  merchandise,  grain,  or  other  product 
or  thing  of  value,  unless  the  property  has  actually  been 
received  by  him  and  is  in  the  warehouse  or  under  his  con- 
trol at  the  time;  and  no  second  warehouse  receipt  can  be 
issued,  so  long  as  a  former  receipt  is  outstanding  and  un- 
canceled in  whole  or  in  part.  A  warehouse  receipt  is  a 
negotiable  instrument,  and  may  be  transferred  by  indorse- 
ment, .and  a  transfer  of  the  receipt  is  a  good  delivery  of  the 
goods  represented  by  it.  But  it  is  only  persons  who  pur- 
sue the  calling  of  warehousemen — that  is,  receive  and  store 
goods  in  a  warehouse  as  a  business  for  profit — that  have 
power  to  issue  a  technical  warehouse  receipt,  the  transfer 
of  which  will  be  considered  by  the  law  a  good  delivery  of 
the  property  represented  by  the  receipt.  Therefore,  such 
a  receipt  issued  by  one  who  is  not  in  that  business  for 
profit,  even  though  he  receives  the  goods,  will  not  have 
given  to  it  by  law  the  character  of  a  negotiable  instrument. 
In  every  case  where  a  warehouseman  receives  property  in 
a  warehouse  as  a  business  for  profit,  the  warehouse  receipt 
is  negotiable,  and  a  transfer  of  the  receipt  in  good  faith,  by 
indorsement  to  another,  passes  the  title  to  the  goods  cov- 
ered by  the  receipt. 

Warehouse  receipts  need  not  be  in  any  particular  form, 
but  every  such  receipt  must  embody  within  its  written  or 
printed  terms — 

(a)  The  location  of  the  warehouse  where  the  goods  are 
stored, 

(b)  The  date  of  issue  of  the  receipt, 

(c)  The  consecutive  number  of  the  receipt, 

(d)  A    statement    whether    the    goods    received    will    be 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  79 

delivered  to  the  bearer,  to  a  specified  person,  or  to  a  speci- 
fied person  or  his  order. 

(e)  The  rate  of  storage  charges, 

(f)  A  description  of  the  goods  or  of  the  packages  contain- 
ing them, 

(g)  The  signature  of  the  warehouseman,  which  may  be 
made  by  his  authorized  agent, 

(h)  If  the  receipt  is  issued  for  goods  of  which  the  ware- 
houseman is  owner,  either  solely  or  jointly  or  in  common 
with  others,  the  fact  of  such  ownership,  and 

(i)  A  statement  of  the  amount  of  advances  made  and  of 
liabilities  incurred  for  which  the  warehouseman  claims  a 
lien.  If  the  precise  amount  of  such  advances  made  ©r  of 
such  liabilities  incurred  is,  at  the  time  of  the  issue  of  the  re- 
ceipt, unknown  to  the  warehouseman  or  to  his  agent  who 
issues  it,  a  statement  of  the  fact  that  advances  have  been 
made  or  liabilities  incurred  and  the  purpose  thereof  is  suffi- 
cient. 

Act  of  the  Legislature,  approved  March  19th,  1909. 

Section  57.— NEGOTIABILITY  OF  WAREHOUSE 
RECEIPT. — A  receipt  in  which  it  is  stated  that  the  goods 
received  will  be  delivered  to  the  depositor,  or  to  any  other 
specified  person,  is  a  non-negotiable  receipt. 

A  receipt  in  which  it  is  stated  that  the  goods  received  will 
be  delivered  to  the  bearer,  or  to  the  order  of  any  person 
named  in  such  receipt,  is  a  negotiable  receipt. 

When  more  than  one  negotiable  receipt  is  issued  for  the 
same  goods,  the  word  "duplicate"  shall  be  plainly  placed 
upon  the  face  of  every  such  receipt,  except  the  one  first  is- 
sued. A  warehouseman  shall  be  liable  for  all  damage  caused 
by  his  failure  so  to  do  to  anyone  who  purchased  the  subse- 
quent receipt  for  value  supposing  it  to  be  an  original,  even 
though  the  purchase  be  after  the  delivery  of  the  goods  by 
the  warehouseman  to  the  holder  of  the  original  receipt. 

A  non-negotiable  receipt  shall  have  plainly  placed  upon 
its  face  by  the  warehouseman  issuing  it,  "non-negotiable," 


bO  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

or  "not  negotiable."  In  case  of  the  warehouseman's  failure 
so  to  do,  a  holder  of  the  receipt  who  purchased  it  for  value 
supposing  it  to  be  negotiable,  may,  at  his  option,  treat  such 
receipt  as  imposing  upon  the  warehouseman  the  same  liabil- 
ities he  would  have  incurred  had  the  receipt  been  negotiable. 
Act  of  the  Legislature,  approved  March  19th,  1909. 

Section  58.— REMOVAL  OF  PROPERTY  BY  WARE- 
HOUSEMAN.— No  warehouseman  can  sell  or  encumber, 
or  ship  or  remove  beyond  his  control,  any  property  for 
which  a  receipt  has  been  given  by  him,  without  the  con- 
sent in  writing  of  the  holder  of  the  receipt,  and  the  consent 
of  the  holder  must  be  plainly  indorsed  on  the  receipt. 

Act  of  the  Legislature,  approved  March  19th,  1909. 

Section  59.— DELIVERY  OF  PROPERTY  BY  WARE- 
HOUSEMAN.— A  warehouseman,  in  the  absence  of  some 
lawful  excuse  provided  by  this  act,  is  bound  to  deliver  the 
goods  upon  a  demand  made  either  by  the  holder  of  a  receipt 
for  the  goods  or  by  the  depositor,  if  such  demand  is  accom- 
panied with — 

An  offer  to  satisfy  the  warehouseman's  lien ; 

An  offer  to  surrender  the  receipt  if  negotiable,  with  such 
endorsements  as  would  be  necessary  for  the  negotiation  of 
the  receipt;  and 

A  readiness  and  willingness  to  sign,  when  the  goods  are 
delivered,  an  acknowledgment  that  they  have  been  de- 
livered, if  such  signature  is  requested  by  the  warehouseman. 

In  case  the  warehouseman  refuses  or  fails  to  deliver  the 
goods  in  compliance  with  a  demand  by  the  holder  or  de- 
positor so  accompanied,  the  burden  is  upon  the  warehouse- 
man to  establish  the  existence  of  a  lawful  excuse  for  such 
refusal. 

A  warehouseman  is  justified  in  delivering  the  goods,  sub- 
ject to  the  above  provisions,  to  one  who  is — 

The  person  lawfully  entitled  to  the  possession  of  the 
goods,  or  his  agent ; 


BUSINESS    CONTBACTS   AND   LEGAL   OBLIGATIONS.  81 

A  person  who  is  either  himself  entitled  to  delivery  by  the 
terms  of  a  non-negotiable  receipt  issued  for  the  goods,  or 
who  has  written  authority  from  the  person  so  entitled  either 
indorsed  upon  the  receipt  or  written  upon  another  paper ;  or 

A  person  in  possession  of  a  negotiable  receipt  by  the  terms 
of  which  the  goods  are  deliverable  to  him  or  order  or  to 
bearer,  or  which  has  been  indorsed  to  him  or  in  blank  by  the 
person  to  whom  delivery  was  promised  by  the  terms  of  the 
receipt  or  by  his  mediate  or  immediate  indorsee. 

Where  a  warehouseman  delivers  the  goods  to  one  who 
is  not  in  fact  lawfully  entitled  to  the  possession  of  them,  the 
warehouseman  will  be  liable  as  for  conversion  to  all  having 
a  right  of  property  or  possession  in  the  goods  if  he  de- 
livered the  goods  otherwise  than  as  authorized  by  law;  and 
though  he  delivered  the  goods  as  authorized  by  law,  he  will 
still  be  liable  if  prior  to  such  delivery  he  had  either  been  re- 
quested, by  or  on  behalf  of  the  person  lawfully  entitled  to  a 
right  of  property  or  possession  in  the  goods,  not  to  make 
such  delivery,  or  had  information  that  the  delivery  about  to 
be  made  was  to  one  not  lawfully  entitled  to  the  possession  of 
the  goods. 

Where  a  warehouseman  delivers  goods  for  which  he  had 
issued  a  negotiable  receipt,  the  negotiation  of  which  would 
transfer  the  right  to  the  possession  of  the  goods,  and  fails 
to  take  up  and  cancel  the  receipt,  he  will  be  liable  to  any 
one  who  purchases  for  value  in  good  faith  such  receipt,  for 
failure  to  deliver  the  goods  to  him,  whether  such  purchaser 
acquired  title  to  the  receipt  before  or  after  the  delivery  of 
the  goods  to  the  warehouseman  ;  and 

Where  a  warehouseman  delivers  part  of  the  goods  for 
which  he  had  issued  a  negotiable  receipt  and  fails  either  to 
take  up  and  cancel  such  receipt,  or  to  place  plainly  upon  it 
a  statement  of  what  goods  or  packages  have  been  delivered, 
he  will  be  liable,  to  any  one  who  purchases  for  value  in  good 
faith  such  receipt,  for  failure  to  deliver  all  the  goods  speci- 
fied in  the  receipt,  whether  such  purchaser  acquired  title  to 
the  receipt  before  or  after  the  delivery  of  any  portion  of  the 


82  BUSINESS  LAWS   FOR   BUSINESS   MEN. 

goods  by  the  warehouseman;  unless  the  goods  have  been 
lawfully  sold  to  satisfy  a  warehouseman's  lien,  or  have  been 
lawfully  sold  or  disposed  of  because  of  their  perishable  or 
hazardous  nature. 

Material  and  fraudulent  alteration  of  a  receipt  will  not  ex- 
cuse the  warehouseman  who  issued  it  from  liability  to  de- 
liver, according  to  the  terms  of  the  receipt  as  originally 
issued,  the  goods  for  which  it  was  issued,  but  will  excuse 
him  from  any  other  liability  to  the  person  who  made  the 
alteration,  and  to  any  person  who  took  with  notice  of  the 
alteration.  Any  purchaser  of  the  receipt  for  value  without 
notice  of  the  alteration  will  acquire  the  same  rights  against 
the  warehouseman  which  such  purchaser  would  have  ac- 
quired if  the  receipt  had  not  been  altered  at  the  time  of  the 
purchase. 

Where  a  negotiable  receipt  has  been  lost  or  destroyed,  a 
court  of  competent  jurisdiction  may  order  the  delivery  of 
the  goods  upon  satisfactory  proof  of  such  loss  or  destruc- 
tion and  upon  the  giving  of  a  bond  with  sufficient  sureties 
to  be  approved  by  the  court  to  protect  the  warehouseman 
from  any  liability  or  expense,  which  he  or  any  person  in- 
jured by  such  delivery  may  incur  by  reason  of  the  original 
receipt  remaining  outstanding.  The  court  may  also  in  its 
discretion  order  the  payment  of  the  warehouseman's  reason- 
able costs  and  counsel  fees. 

The  delivery  of  the  goods  under  an  order  of  the  court  will 
not  relieve  the  warehouseman  from  liabilities  to  a  person  to 
whom  the  negotiable  receipt  has  been  negotiated  for  value 
without  notice  of  the  proceedings  or  of  the  delivery  of  the 
goods. 

(a) — Duplicate  Receipt. — A  receipt  upon  the  face  of  which 
the  word  "duplicate"  is  plainly  placed  is  a  representation  and 
warranty  by  the  warehouseman  that  such  receipt  is  an  ac- 
curate copy  of  an  original  receipt  properly  issued  and  un- 
cancelled at  the  date  of  the  issue  of  the  duplicate,  but  im- 
poses upon  him  no  other  liability. 

Act  of  the  Legislature,  approved  March  19th,  1909. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  83 

Section  60.— LIABILITY  OF  WAREHOUSEMAN.— If 

some  one  other  than  the  depositor  or  person  claiming  under 
him  has  a  claim  to  the  title  or  possession  of  the  goods,  and 
the  warehouseman  has  information  of  such  claim,  the  ware- 
houseman will  be  excused  from  liability  for  refusing  to  de- 
liver the  goods,  either  to  the  depositor  or  person  claiming 
under  him  or  to  the  adverse  claimant,  until  the  warehouse- 
man has  had  a  reasonable  time  to  ascertain  the  validity  of 
the  adverse  claim  or  to  bring  legal  proceedings  to  compel  all 
claimants  to  interplead.  If  an  adverse  claimant  does  not 
bring  suit  and  serve  summons  on  the  warehouseman  within 
forty-eight  hours  after  the  service  of  notice  of  his  adverse 
claim,  such  failure  will  act  as  a  complete  abandonment  of 
such  adverse  claim. 

A  warehouseman  will  be  liable  to  the  holder  of  a  receipt 
for  damages  caused  by  the  non-existence  of  the  goods  or  by 
failure  of  the  goods  to  correspond  with  the  description  there- 
of in  the  receipt  at  the  time  of  its  issue.  If,  however,  the 
goods  are  described  in  a  receipt  merely  by  a  statement  of 
marks  or  labels  upon  them,  or  upon  packages  containing 
them,  or  by  a  statement  that  the  goods  are  said  to  be  goods 
of  a  certain  kind,  or  that  packages  containing  the  goods  are 
said  to  contain  goods  of  a  certain  kind,  or  by  words  of  like 
purport,  such  statements,  if  true,  will  not  make  liable  the 
warehouseman  issuing  the  receipt,  although  the  goods  are 
not  of  the  kind  which  the  marks  or  labels  upon  them  indi- 
cate, or  of  the  kind  they  were  said  to  be  by  the  depositor, 

A  warehouseman  shall  be  liable  for  any. loss  or  injury  tO 
the  goods  caused  by  his  failure  to  exercise  such  care  in  re- 
gard to  them  as  a  reasonable  careful  owner  of  similar  goods 
would  exercise ;  but  he  will  not  be  liable,  in  the  absence  of  an 
agreement  to  the  contrary,  for  any  loss  or  injury  to  the 
goods  which  could  not  have  been  avoided  by  the  exercise  of 
such  care. 

A  warehouseman  shall  keep  the  goods  so  far  separate 
from  goods  of  other  depositors,  and  from  other  goods  of  the 
same  depositor  for  which  a  separate  receipt  has  been  issued, 


84  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

as  to  permit  at  all  times  the  identification  and  re-delivery  of 
the  goods  deposited. 

If  authorized  by  agreement  or  by  custom,  a  warehouse- 
man may  mingle  fungible  goods  with  other  goods  of  the 
same  kind  and  grade.  In  such  case  the  various  depositors 
of  mingled  goods  shall  own  the  entire  mass  in  common*,  and 
each  depositor  shall  be  entitled  to  such  portion  thereof  as 
the  amount  deposited  by  him  bears  to  the  whole.  The  ware- 
houseman will  be  severally  liable  to  each  depositor  for  the 
care  and  re-delivery  of  his  share  of  such  mass  to  the  same 
extent  and  under  the  same  circumstances  as  if  the  goods 
had  been  kept  separate. 

If  goods  are  delivered  to  a  warehouseman  by  the  owner  or 
by  a  person  whose  act  in  conveying  the  title  to  them  to  a 
purchaser  in  good  faith  for  value  would  bind  the  owner,  and 
a  negotiable  receipt  is  issued  for  them,  they  can  not  there- 
after, while  in  the  possession  of  the  warehouseman,  be  at- 
tached by  garnishment  or  otherwise,  or  be  levied  upon  under 
an  execution,  unless  the  receipt  be  first  surrendered  to  the 
warehouseman,  or  its  negotiation  enjoined.  The  ware- 
houseman will  in  no  case  be  compelled  to  deliver  up  the 
actual  possession  of  the  goods  until  the  receipt  is  surren- 
dered to  him  or  impounded  by  the  court. 

Section  61.— WAREHOUSEMAN'S  LIABILITY  FOR 
DELIVERING    PROPERTY    TO    WRONG  PERSON. 

— A  warehouseman  must  use  ordinary  care  and  diligence 
to  ascertain  whether  an  indorsement  is  genuine  before  de- 
livering the  property.  And  if  he  delivers  the  property  to 
a  person  who  has  no  right  to  it,  when  he  might  have 
ascertained  the  truth  by  the  exercise  of  ordinary  care  and 
diligence,  he  will  be  liable  to  the  owner  of  the  goods. 

Section  62.— WAREHOUSEMAN'S  LIABILITY  FOR 
LOSS  BY  FIRE. — No  warehouseman  is  responsible  for 
any  loss  or  damage  to  property  by  fire  while  in  his  custody, 
if    he    exercises    reasonable    care    and    diligence    for    its 


BUSINESS   CONTRACTS  AND  LEGAL  OBLIGATIONS.  85 

protection  and  preservation.  If  the  property  in  his  ware- 
house is  destroyed  by  fire,  in  order  to  make  him  liable  for 
the  loss,  it  must  be  shown  that  his  own  neglect  was  the 
cause  of  the  fire,  or  that,  a  fire  occurring,  he  had  the  oppor- 
tunity to  save  the  property,  but  neglected  to  do  so,  with  the 
means  at  hand. 

Statutes  of  1877-78,  pp.  949,  950. 

Section  63.— SALE  OF  PROPERTY  FOR  STORAGE 
CHARGES. — A  warehouseman  has  a  lien  on  goods  de- 
posited or  on  the  proceeds  thereof  in  his  hands,  for  all  law- 
ful charges  for  storage  and  preservation  of  the  goods ;  also 
for  all  lawful  claims  for  money  advanced,  interest,  insurance, 
transportation,  labor,  weighing,  coopering  and  other  charges 
and  expenses  in  relation  to  such  goods;  also  for  all  reason- 
able charges  and  expenses  for  notice,  and  advertisements  of 
sale,  and  for  sale  of  the  goods  where  default  has  been  made 
in  satisfying  the  warehouseman's  lien. 

A  warehouseman's  lien  may  be  enforced  against  all  goods, 
whenever  deposited,  belonging  to  the  person  who  is  liable 
as  debtor  for  the  claims  in  regard  to  which  the  lien  is  as- 
serted ;  and  against  all  goods  belonging  to  others  which  have 
been  deposited  at  any  time  by  the  person  who  is  liable  as 
debtor  for  the  claims  in  regard  to  which  the  lien  is  asserted, 
if  such  person  had  been  so  entrusted  with  the  possession  of 
the  goods  that  a  pledge  of  the  same  by  him  at  the  time  of  the 
deposit  to  one  who  took  the  goods  in  good  faith  for  value 
would  have  been  valid. 

A  warehouseman  loses  his  lien  upon  goods,  by  surrender- 
ing possession  thereof,  or  by  refusing  to  deliver  the  goods 
when  a  demand  is  made  with  which  he  is  bound  to  comply 
under  the  provisions  of  this  act.      , 

If  a  negotiable  receipt  is  issued  for  goods,  the  warehouse- 
man shall  have  no  lien  thereon,  except  for  charges  for  stor- 
age of  those  goods  subsequent  to  the  date  of  the  receipt, 
unless  the  receipt  expressly  enumerates  other  charges  for 
which  a  lien  is  claimed. 


86  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

A  warehouseman  having  a  lien  valid  against  the  person 
demanding  the  goods  may  refuse  to  deliver  the  goods  to  him 
until  the  lien  is  satisfied. 

A  warehouseman's  lien  for  a  claim  which  has  become  due 
may  be  satisfied  as  follows  :  The  warehouseman  must  give  a 
written  notice  to  the  person  on  whose  account  the  goods  are 
held,  and  to  any  other  person  known  by  the  warehouseman 
to  claim  an  interest  in  the  goods.  Such  notice  must  be  given 
by  delivery  in  person  or  by  registered  letter  addressed  to  the 
last  known  place  of  business  or  abode  of  the  person  to  be 
notified.    The  notice  must  contain, 

(a)  An  itemized  statement  of  the  warehouseman's  claim, 
showing  the  sum  due  at  the  time  of  the  notice  and  the  date 
or  dates  when  it  became  due, 

(b)  A  brief  description  of  the  goods  against  which  the 
lien  exists, 

(c)  A  demand  that  the  amount  of  the  claim  as  stated  in 
the  notice,  and  of  such  further  claim  as  shall  accrue  shall  be 
paid  on  or  before  the  day  mentioned,  not  less  than  ten  days 
from  the  delivery  of  the  notice  if  it  is  personally  delivered, 
or  from  the  time  when  the  notice  should  reach  its  destina- 
tion, according  to  the  due  course  of  post,  if  the  notice  is  sent 
by  mail,  and 

(d)  A  statement  that  unless  the  claim  is  paid  within  the 
time  specified  the  goods  will  be  advertised  for  sale  and  sold 
by  auction  at  a  specified  time  and  place. 

In  accordance  with  the  terms  of  a  notice  so  given,  a  sale 
of  the  goods  by  auction  may  be  had  to  satisfy  any  valid 
claim  of  the  warehouseman  for  which  he  has  a  lien  on  the 
goods.  The  sale  must  be  had  in  the  place  where  the  lien  was 
acquired,  or,  if  such  place  is  manifestly  unsuitable  for  the 
purpose,  at  the  nearest  suitable  place.  After  the  time  for  the 
payment  of  the  claim  specified  in  the  notice  to  the  depositor 
has  elapsed,  an  advertisement  of  the  sale,  describing  the 
goods  to  be  sold,  and  stating  the  name  of  the  owner  or  per- 
son on  whose  account  the  goods  are  held,  and  the  time  and 
place  of  the  sale,  must  be  published  once  a  week  for  two 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS,  87 

consecutive  weeks  in  a  newspaper  published  in  the  place 
where  such  sale  is  to  be  held.  The  sale  must  not  be  less 
than  fifteen  days  from  the  time  of  the  first  publication.  If 
there  is  no  newspaper  published  in  such  place,  the  adver- 
tisement must  be  posted  at  least  ten  days  before  such  sale 
in  not  less  than  six  conspicuous  places  therein. 

From  the  proceeds  of  such  sale  the  warehouseman  must 
satisfy  his  lien,  including-  the  reasonable  charges  of  notice, 
advertisement,  and  sale.  The  balance,  if  any,  of  such  pro- 
ceeds must  be  held  by  the  warehouseman,  and  delivered  on 
demand  to  the  person  to  whom  he  would  have  been  bound 
to  deliver  or  justified  in  delivering  the  goods. 

At  any  time  before  the  goods  are  sold  any  person  claiming 
a  right  of  property  or  possession  therein  may  pay  the  ware- 
houseman the  amount  necessary  to  satisfy  his  lien  and  pay 
the  reasonable  expenses  and  liabilities  incurred  in  serving 
notices  and  advertising  and  preparing  for  the  sale  up  to  the 
time  of  such  payment.  The  warehouseman  must,  deliver  the 
goods  to  the  person  making  such  payment,  if  he  is  a  person 
entitled  to  the  possession  of  the  goods,  on  payment  of 
charges  thereon.  Otherwise  the  warehouseman  must  retain 
possession  of  the  goods  according  to  the  terms  of  the  original 
contract  of  deposit. 

If  the  goods  are  of  a  perishable  nature,  or  by  keeping  will 
deteriorate  greatly  in  value,  or  by  their  odor,  leakage,  in- 
flammability, or  explosive  nature,  will  be  liable  to  injure 
other  property,  the  warehouseman  may  give  such  notice  to 
the  owner,  or  to  the  person  in  whose  name  the  goods  are 
stored,  as  is  reasonable  and  possible  under  the  circum- 
stances, to  satisfy  the  lien  upon  such  goods,  and  to  remove 
them  from  the  warehouse,  and  in  the  event  of  the  failure  of 
such  person  to  satisfy  the  lien  and  to  remove  the  goods 
within  the  time  specified,  the  warehouseman  may  sell  the 
goods  at  public  or  private  sale  without  advertising.  If  the 
warehouseman  after  a  reasonable  eflfort  is  unable  to  sell  such 
goods,  he  may  dispose  of  them  in  any  lawful  manner,  and 
will  incur  no  liability  by  reason  thereof. 


88  BUSINESS   LAWS   FOB   BUSINESS    MEN. 

After  goods  have  been  lawfully  sold  to  satisfy  a  ware- 
houseman's lien,  or  have  been  lawfully  sold  or  disposed  of 
because  of  their  perishable  or  hazardous  nature,  the  ware- 
houseman will  not  thereafter  be  liable  for  failure  to  deliver 
the  goods  to  the  depositor,  or  owner  of  the  goods,  or  to  a 
holder  of  the  receipt  given  for  the  goods  when  they  were  de- 
posited, even  if  such  receipt  be  negotiable. 

Section  63a.— NEGOTIATION  OF  WAREHOUSE  RE- 
CEIPT.— A  negotiable  receipt  may  be  negotiated  by  de- 
livery where,  by  the  terms  of  the  receipt,  the  warehouseman 
undertakes  to  deliver  the  goods  to  the  bearer;  or  where,  by 
the  terms  of  the  receipt,  the  warehouseman  undertakes  to 
deliver  the  goods  to  the  order  of  a  specified  person,  and  such 
person  or  a  subsequent  indorsee  of  the  receipt  has  indorsed 
it  in  blank  or  to  bearer. 

Where,  by  the  terms  of  a  negotiable  receipt,  the  goods  are 
deliverable  to  bearer,  or  where  a  negotiable  receipt  has  been 
indorsed  in  blank  or  to  bearer,  any  holder  may  indorse  the 
same  to  himself  or  to  any  other  specified  person,  and  in  such 
case  the  receipt  must  thereafter  be  negotiated  only  by  the 
indorsement  of  such  indorsee. 

A  negotiable  receipt  may  be  negotiated  by  the  indorse- 
ment of  the  person  to  whose  order  the  goods  are,  by  the 
terms  of  the  receipt,  deliverable.  Such  indorsement  may  be 
in  blank,  to  bearer  or  to  a  specified  person.  If  indorsed  to 
a  specified  person,  it  may  be  again  negotiated  by  the  indorse- 
ment of  such  person  in  blank,  to  bearer  or  to  another  speci- 
fied person.  Subsequent  negotiation  may  be  made  in  like 
manner. 

A  receipt  which  is  not  in  such  form  that  it  can  be  negoti- 
ated by  delivery  may  be  transferred  by  the  holder  by  de- 
livery to  a  purchaser  or  donee. 

A  non-negotiable  receipt  can  not  be  negotiated,  and  the  in- 
dorsement of  such  a  receipt  gives  the  transferee  no  addi- 
tional right. 


BUSINESS    CONTRACTS    AND    LEGAL    OBLIGATIONS.  89 

A  negotiable  receipt  may  be  negotiated  by  the  owner 
thereof;  or  by  any  person  to  whom  the  possession  or  custody 
of  the  receipt  has  been  entrusted  by  the  owner,  if,  by  the 
terms  of  the  receipt,  the  warehouseman  undertakes  to  de- 
liver the  goods  to  the  order  of  the  person  to  whom  the  pos- 
session or  custody  of  the  receipt  has  been  entrusted,  or  if  at 
the  time  of  such  entrusting  the  receipt  is  in  such  form  that 
it  may  be  negotiated  by  delivery. 

A  person  to  whom  a  negotiable  receipt  has  been  duly 
negotiated  acquires  thereby  such  title  to  the  goods  as  the 
person  negotiating  the  receipt  to  him  had,  or  had  ability  to 
convey  to  a  purchaser  in  good  faith  for  value,  and  also  such 
title  to  the  goods  as  the  depositor  or  person  to  whose  order 
the  goods  were  to  be  delivered  by  the  terms  of  the  receipt 
had,  or  had  ability  to  convey  to  a  purchaser  in  good  faith 
for  value;  and  he  also  acquires  the  direct  obligation  of  the 
warehouseman  to  hold  possession  of  the  goods  for  him  ac- 
cording to  the  terms  of  the  receipt  as  fully  as  if  the  ware- 
houseman had  contracted  directly  with  him. 

A  person  to  whom  a  receipt  has  been  transferred  but  not 
negotiated,  acquires  thereby,  as  against  the  transferor,  the 
title  to  the  goods,  subject  to  the  terms  of  any  agreement  with 
the  transferor. 

If  the  receipt  is  non-negotiable  such  person  also  acquires 
the  right  to  notify  the  warehouseman  of  the  transfer  to  him 
of  such  receipt,  and  thereby  to  acquire  the  direct  obligation 
of  the  warehouseman  to  hold  possession  of  the  goods  for 
him  according  to  the  terms  of  the  receipt. 

Prior  to  the  notification  of  the  warehouseman  by  the  trans- 
feror or  transferee  of  a  non-negotiable  receipt,  the  title  of  the 
transferee  to  the  goods  and  the  right  to  acquire  the  obliga- 
tion of  the  warehouseman  may  be  defeated  by  the  levy  of  an 
attachment  or  execution  upon  the  goods  by  a  creditor  of  the 
transferor,  or  by  a  notification  to  the  warehouseman  by  the 
transferor,  or  a  subsequent  purchaser  from  the  transferor, 
of  a  subsequent  sale  of  the  goods. 


9C  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Where  a  negotiable  receipt  is  transferred  for  value  by 
delivery,  and  the  indorsement  of  the  transferor  is  essential 
for  negotiation,  the  transferee  acquires  a  right  against  the 
transferor  to  compel  him  to  indorse  the  receipt,  unless  a 
contrary  intention  appears.  The  negotiation  will  take  effect 
as  of  the  time  when  the  indorsement  is  actually  made. 

A  person  who  for  value  negotiates  or  transfers  a  receipt 
by  indorsement  or  delivery,  including  one  who  assigns  for 
value  a  claim  secured  by  a  receipt,  unless  a  contrary  inten- 
tion appears,  warrants,  that  the  receipt  is  genuine ;  that  he 
has  a  legal  right  to  negotiate  or  transfer  it;  that  he  has 
knowledge  of  no  fact  which  would  impair  the  validity  or 
worth  of  the  receipt ;  and  that  he  has  a  right  to  transfer  the 
title  to  the  goods,  and  that  the  goods  are  merchantable  or 
fit  for  a  particular  purpose  whenever  such  warranties  would 
have  been  implied,  if  the  contract  of  the  parties  had  been 
to  transfer  without  a  receipt  the  goods  represented  thereby. 

The  indorsement  of  a  receipt  will  not  make  the  indorser 
liable  for  any  failure  on  the  part  of  the  warehouseman  or 
previous  indorsers  of  the  receipt  to  fulfill  their  respective 
obligations. 

A  mortgagee,  pledgee  or  holder  for  security  of  a  receipt 
who  in  good  faith  demands  or  receives  payment  pf  the  debt 
for  which  such  receipt  is  security,  whether  from  a  party  to 
a  draft  drawn  for  such  debt  or  from  any  other  person,  will 
not  by  so  doing  be  deemed  to  represent  or  to  warrant  the 
genuineness  of  such  receipt  or  the  quantity  or  quality  of  the 
goods  therein  described. 

The  validity  of  the  negotiation  of  a  receipt  is  not  impaired 
by  the  fact  that  such  negotiation  was  a  breach  of  duty  on 
the  part  of  the  person  making  the  negotiation,  or  by  the  fact 
that  the  ownerof  the  receipt  was  induced  by  fraud,  mistake, 
or  duress  to  entrust  the  possession  or  custody  of  the  receipt 
to  such  person,  if  the  person  to  whom  the  receipt  was  nego- 
tiated, or  a  person  to  whom  the  receipt  was  subsequently 
negotiated,  paid  value  therefor,  without  notice  of  the  breach 
of  duty,  or  fraud,  mistake,  or  duress. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  91 

Where  a  person  having  sold,  mortgaged,  or  pledged  goods 
which  are  in  a  warehouse  and  for  which  a  negotiable  receipt 
has  been  issued,  or  having  sold,  mortgaged,  or  pledged  the 
negotiable  receipt  representing  such  goods,  continues  in  pos- 
session of  the  negotiable  receipt,  the  subsequent  negotiation 
thereof  by  that  person  under  any  sale,  or  other  disposition 
thereof,  to  any  person  receiving  the  same  in  good  faith,  for 
value  and  without  notice  of  the  previous  sale,  mortgage  or 
pledge,  will  have  the  same  effect  as  if  the  first  purchaser  of 
the  goods  or  receipt  had  expressly  authorized  the  subse- 
quent negotiation. 

Where  a  negotiable  receipt  has  been  issued  for  goods,  no 
seller's  lien  or  right  of  stoppage  in  transitu  will  defeat  the 
rights  of  any  purchaser  for  value  in  good  faith  to  whom  such 
receipt  has  been  negotiated,  whether  such  negotiation  be 
prior  or  subsequent  to  the  notification  to  the  warehouseman 
who  issued  such  receipt  of  the  seller's  claim  to  a  lien  or 
right  of  stoppage  in  transitu. 

Section    63b.  —  FRAUD    BY    WAREHOUSEMAN.— 

A  warehouseman,  or  any  officer,  agent,  or  servant  of  a 
warehouseman,  who  issues  or  aids  in  issuing  a  receipt  know- 
ing that  the  goods  for  which  such  receipt  is  issued  have 
not  been  actually  received  by  such  warehouseman,  or  are 
not  under  his  control  at  the  time  of  issuing  such  receipt, 
will  be  guilty  of  a  crime,  and  upon  conviction  will  be  pun- 
ished for  each  offense  by  imprisonment  not  exceeding  five 
years,  or  by  a  fine  not  exceeding  five  thousand  dollars,  or 
by  both. 

A  warehouseman,  or  any  officer,  agent,  or  servant  of  a 
warehouseman,  who  fraudulently  issues  or  aids  in  fraudu- 
lently issuing  a  receipt  for  goods,  knowing  that  it  contains 
any  false  statement,  will  be  guilty  of  a  crime,  and  upon 
conviction  will  be  punished  for  each  offense  by  imprison- 
ment not  exceeding  one  year,  or  by  a  fine  not  exceeding  one 
thousand  dollars,  or  by  both. 


92  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

A  warehouseman,  or  any  officer,  agent,  or  servant  of  a 
warehouseman,  who  issues  or  aids  in  issuing  a  duplicate  or 
additional  negotiable  receipt  for  goods,  knowing  that  a 
former  negotiable  receipt  for  the  same  goods  or  any  part  of 
them  is  outstanding  and  uncancelled,  without  plainly  plac- 
ing upon  the  face  thereof  the  word  "duplicate,"  except  in 
the  case  of  a  lost  or  destroyed  receipt,  will  be  guilty  of  a 
crime,  and  upon  conviction  may  be  punished  for  each  offense 
by  imprisonment  not  exceeding  five  years,  or  by  a  fine  not 
exceeding  five  thousand  dollars,  or  by  both. 

Where  there  are  deposited  with  or  held  by  a  warehouse- 
man goods  of  which  he  is  owner,  either  solely  or  jointly  or 
in  common  with  others,  such  warehouseman,  or  any  of  his 
officers,  agents,  or  servants  who,  knowing  this  ownership, 
issues  or  aids  in  issuing  a  negotiable  receipt  for  such  goods 
which  does  not  state  such  ownership,  will  be  guilty  of  a 
crime,  and  upon  conviction  may  be  punished  for  each  ofifense 
by  imprisonment  not  exceeding  one  year,  or  by  a  fine  not 
exceeding  one  thousand  dollars,  or  by  both. 

A  warehouseman,  or  any  officer,  agent,  or  servant  of  a 
warehouseman  who  delivers  goods  out  of  the  possession  of 
such  warehouseman,  knowing  that  a  negotiable  receipt  the 
negotiation  of  which  would  transfer  the  right  to  the  pos- 
session of  such  goods  is  outstanding  and  uncancelled,  with- 
out obtaining  the  possession  of  such  receipt  at  or  before 
the  time  of  such  deliver}'-,  will  be  guilty  of  a  crime,  and 
upon  conviction  may  be  punished  for  each  offense  by  im- 
prisonment not  exceeding  one  year,  or  by  a  fine  not  exceed- 
ing one  thousand  dollars,  or  by  both. 

Any  person  who  deposits  goods  to  which  he  has  not 
title,  or  upon  which  there  is  a  lien  or  mortgage,  and  who 
takes  for  such  goods  a  negotiable  receipt  which  he  after- 
wards negotiates  for  value  with  intent  to  deceive  and 
without  disclosing  his  want  of  title  or  the  existence  of  the 
lien  or  mortgage,  will  be  guilty  of  a  crime,  and  upon  con- 
viction may  be  punished  for  each  offense  by  imprisonment 


BUSINESS   CONTRACTS   AND   LEGAL   OBIJGATIONS.  93 

not  exceeding  one  year,  or  by  a  fine  not  exceeding  one  thou- 
sand dollars,  or  by  both. 

Act  of  the  Legislature,  approved  March  19,  1909. 

Hotel  Keepers  and  Lodging-house  Keepers 

Section  64.— LIABILITY  OF  HOTEL  KEEPERS 
AND  LODGING-HOUSE  KEEPERS.— Hotel  keepers 
(including  boarding-house  keepers)  and  lodging-house 
keepers  have  certain  rights  and  liabilities  fixed  by  statute. 
The  language  of  the  California  statute  referring  to  hotels 
is,  "Inn  keepers,  hotel  keepers,  boarding  and  lodging-house 
keepers."  There  is  no  difference  in  the  law  between  an 
inn  and  hotel.  Both  words  mean  the  same  thing.  An  inn 
is  a  house  which  is  held  out  to  the  public  as  a  place  where 
all  transient  persons  who  come  will  be  received  and  enter- 
tained as  guests,  for  compensation, — a  hotel.  There  is  a 
difference  between  a  hotel  and  a  boarding-house,  which  is 
this :  A  hotel  is  a  house  where  a  keeper  holds  himself  out 
as  ready  to  receive  all  who  may  choose  to  come  there  and 
pay  an  adequate  price  for  the  entertainment,  while  the 
keeper  of  a  boarding-house  reserves  the  choice  of  comers 
and  the  terms  of  accommodation,  contracting  specially  with 
each  customer,  and  most  commonly  arranging  for  long 
periods  and  a  definite  abode.  There  is  no  difference  in  the 
law  between  the  liability  of  hotel  keepers,  boarding-house 
keepers,  and  lodging-house  keepers.  The  law  puts  them 
all  in  the  same  class  with  reference  to  their  liability  for 
the  property  of  their  guests,  boarders,  or  lodgers.  Hotel 
keepers,  boarding-house  keepers,  and  lodging-house  keep- 
ers in  California  are  bound  to  use  ordinary  care  and  dili- 
gence in  the  protection  and  preservation  of  the  personal 
property,  other  than  money,  of  their  guests,  boarders,  or 
lodgers  coming  into  their  houses ;  and  they  are  liable  for 
losses  of  or  injuries  to  such  property,  if  occasioned  by  their 
lack  of  ordinary  care  and  diligence.  The  law  passed  by  the 
Legislature  in  1895  limited  the  liability  of  hotel  keepers, 
boarding  and  lodging-house  keepers,  to  losses  occasioned 


94  BUSINESS  LAWS   FOR   BUSINESS   MEN. 

by  their  lack  of  ordinary  care  and  diligence,  but  does 
not  include  money  within  its  terms ;  consequently  it  seems 
that  greater  and  more  exacting  care  must  be  taken  of 
the  money  of  a  guest,  boarder,  or  lodger  than  is  required 
to  be  exercised  with  reference  to  other  kinds  of  personal 
property.  The  law  provides,  however,  that  in  no  case  of 
loss  of  or  injury  to  personal  property,  other  than  money, 
shall  the  liability  of  the  hotel  keeper,  boarding-house 
keeper,  or  lodging-house  keeper  exceed  the  sum  of  $100 
for  each  trunk  and  its  contents,  $50  for  each  valise  and 
traveling  bag  and  contents,  and  $10  for  each  box,  bundle 
or  package  and  contents,  placed  under  his  care,  unless  he 
has  consented  in  writing  with  the  owner  to  assume  a 
greater  liability.  It  is  customary  to  give  receipts  in  writ- 
ing for  money  left  or  deposited  by  guests,  and  in  such  case 
the  liability  would  be  for  the  amount  shown  by  the  receipt, 
in  case  of  loss. 

Civil  Code,  Section  1859. 

Section  65.— EXEMPTION  FROM  LIABILITY  IN 
CERTAIN  CASES.— The  courts  had  held  hotel  keepers 
to  such  a  strict  liability  that  the  Legislature  was  induced, 
in  1895,  to  pass  a  law  making  practically  an  exemption  in 
certain  cases,  and  modifying  to  a  great  extent  the  extreme 
strictness  of  the  law  as  it  then  stood  in  this  State.  By 
the  law  passed  in  1895,  and  which  is  now  in  force,  if  a  hotel 
keeper,  or  boarding-house  or  lodging-house  keeper,  keeps 
a  fireproof  safe,  and  gives  notice  to  his  guest,  boarder,  or 
lodger  that  he  keeps  such  a  safe,  and  will  not  be  liable  for 
money,  jewelry,  documents,  or  other  articles  of  unusual 
value  and  small  compass,  unless  such  articles  are  placed 
in  the  safe,  he  will  not  be  liable  for  any  loss  or  damage 
to  such  articles  if  not  deposited  with  him  to  be  placed  in 
his  safe,  provided,  that  he  does  not  by  his  own  acts  con- 
tribute to  the  loss  of  the  property.  This  law  also  provides 
that,  in  any  case,  the  hotel  keeper,  boarding-house  keeper, 
or  lodging-house  keeper  shall  not  be  liable  for  more  than 
$250   for    loss   of   any    money,   jewelry,    or   documents,    or 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  95 

Other  articles  of  unusual  value  and  small  compass,  belong- 
ing to  any  guest,  boarder,  or  lodger,  unless  he  shall  have 
given  a  receipt  in  writing  for  such  property.  Just  what 
the  law  means  by  a  '^receipt  in  writing,"  and  how  that  fact 
alone  should  make  the  liability  greater,  is  difficult  to  under- 
stand ;  but  it  is  probable  that  the  Legislature  meant  to 
provide,  by  this  language,  that  where  a  receipt  is  given 
acknowledging  a  greater  value,  then  the  liability  for  the  loss 
shall  be  equal  to  the  admitted  value  of  the  property,  and 
that  where  no  receipt  is  given,  no  value  in  excess  of  $250 
shall  be  left  to  be  determined  by  the  conflicting  testimony 
of  witnesses.  The  notice  provided  for  in  the  law  need  not 
be  in  any  particular  form,  and  it  may  be  given  personally 
to  the  guest,  boarder,  or  lodger,  or  it  may  be  given  by  put- 
ting up  a  printed  notice  in  a  prominent  place  in  the  office 
or  in  the  rooms  of  the  house. 

Civil  Code,  Section  1860. 

Section  66.— WHAT  PROPERTY  MUST  BE  DE- 
POSITED IN  THE  SAFE.— Under  the  notice  provided 
for  by  law  to  be  given  by  the  hotel  keeper,  boarding- 
house  keeper,  or  lodging-house  keeper,  he  cannot  demand 
that  his  guest  put  every  article  of  small  compass  and 
peculiar  value,  or  all  his  money  or  jewelry,  in  the  safe. 
The  law  does  not  apply  to  such  articles  as  the  guest  needs 
to  have  about  him,  for  constant  and  daily  use,  even  though 
for  personal  adornment.  Jewelry  worn  by  a  woman  daily 
need  not,  when  not  actually  upon  her  person,  be  deposited 
in  the  safe,  in  order  to  make  the  hotel  keeper  or  boarding 
and  lodging-house  keeper  responsible  for  its  loss  in  his 
house.  If  worn  daily,  the  jewelry  does  not  cease  to.  be 
needed  for  present  personal' use  when  its  possessor  lays 
it  aside  upon  retiring  for  the  night.  Nor  is  it  necessary, 
in  order  to  render  the  hotel  keeper  liable,  that  the  property 
should  have  been  delivered  into  his  exclusive  personal 
possession.  The  guest  may  retain  personal  possession  of 
his  goods  within  the  house — as  of  his  trunk  and  its  con- 
tents, his  wearing  apparel,  and  other  articles  in  his  room, 


96  BUSINESS  LAWS  FOR  BUSINESS  itfEN. 

and  any  jewelry  or  valuables  carried  or  worn  around  his 
person — without  discharging  the  keeper  of  the  house  from 
responsibility.  Therefore  the  Act  of  1895,  referred  to  in 
the  preceding  section,  is  not  intended  to  apply,  and  does 
not  apply,  to  the  articles  just  enumerated,  needed  by  the 
guest  for  daily  use;  for  it  would  be  a  manifest  absurdity 
to  require  the  guest,  upon  retiring  for  the  night,  to  leave 
his  personal  apparel,  or  anything  carried  or  worn  around 
his  person,  in  the  house  safe.  The  law  only  applies  to  such 
articles  as  are  not  needed  by  the  guest  for  daily  use. 

Section  67.— LIABILITY  OF  HOTEL,  BOARDING- 
HOUSE,  AND  LODGING-HOUSE  KEEPERS  FOR 
LOSS  BY  FIRE.— In  some  of  the  States  of  the  Union  the 
keeper  of  a  hotel  is  held  to  be  an  insurer  against  loss  by 
fire,  and  is  bound  to  pay  for  property  lost  by  a  fire,  no 
matter  from  what  cause  occurring.  But  this  extreme  view 
is  not  the  law  of  California.  In  this  State,  when  a  fire 
occurs,  and  destroys  or  injures  the  property  of  a  guest, 
boarder,  or  lodger,  the  keeper  of  the  house  is  not  liable  to 
pay  the  damage  if  he  can  show  that  the  fire  was  purely 
accidental,  and  that  neither  his  negligence  nor  the  negli- 
gence of  his  servants  or  employees  contributed  to  the  loss. 
But  if  the  fire  occurs  through  the  negligence  of  the  propri- 
etor, or  by  the  neglect  of  any  of  his  servants  or  employees, 
he  will  be  liable  for  damage  to  the  property  of  his  guests. 
Thus,  if  a  cook  or  fireman  negligently  leaves  coals  or  ashes 
containing  fire  in  a  position  which  ignites  and  destroys  the 
house,  or  if  a  chambermaid  negligently  sets  fire  to  the 
furniture  of  a  room,  or  if  a  porter  or  bellboy  sent  to  build 
a  fire  in  the  room  of  a  guest  sets  fire  to  the  house,  or  if 
a  sufficient  watch  is  not  kept,  or  reasonable  protection  and 
guard  against  fire  is  not  maintained,  the  keeper  of  a  hotel, 
boarding-house,  or  lodging-house  will  be  liable  in  this  State 
for  loss  by  fire.  But  where  the  keeper  of  the  house  has 
done  all  that  a  reasonable  man  can  do  to  guard  against  the 
danger  from  fire,  and  a  fire  occurs,  without  any  negligence 
on  his  own  part  or  on  the  part  of  any  of  his  servants  or 


BUSINESS   CONTRACTS   AND    LEGAL   OBLIGATIONS.  97 

employees,  he  will  not  be  liable.  Thus,  if  a  fire  starts  in 
an  adjoining  building,  or  in  some  other  quarter  of  the  town, 
and  reaches  and  sweeps  away  his  own  house ;  or  if  a  fire 
occurs  by  reason  of  lightning,  earthquake,  or  floods,  he  will 
not  be  liable  for  losses  to  his  guests,  boarders,  or  lodgers. 
Indeed,  it  may  be  said  that  it  is  the  law  of  this  State  that 
in  no  case  of  loss  by  fire  is  the  keeper  of  a  hotel,  boarding- 
house,  or  lodging-house  liable  for  the  property  of  guests, 
where  the  fire  was  purely  accidental,  and  was  not  occa- 
sioned by  anything  which  reasonable  care  and  prudence 
on  the  part  of  himself  or  his  servants  and  employees  might 
have  avoided  or  prevented. 

Section  68.— LIABILITY  OF  HOTEL,  BOARDING- 
HOUSE,  AND  LODGING-HOUSE  KEEPERS  FOR 
LOSS  BY  THEFT.— The  liability  of  the  keeper  of  a  hotel 
boarding-house,  or  lodging-house  for  losses  of  the  property 
of  his  guests,  boarders,  or  lodgers,  by  theft,  depends  upon 
whether  the  thieves  come  from  within  the  house.  If  the 
property  is  stolen  by  some  one  employed  in  the  house,  in 
any  capacity,  or  even  by  a  guest,  boarder  or  lodger,  with- 
out the  fault  of  the  person  from  whom  the  property  is 
taken,  the  keeper  of  the  house  will  be  liable  for  its  loss. 
But  if  burglars  or  rioters  break  into  the  house  and  steal, 
this  will  constitute  an  act  which  the  keeper  of  the  house 
could  not  very  well  have  had  any  control  over,  and  hence 
he  will  not  be  liable,  if  he  kept  his  house  secured  in  a  rea- 
sonable manner. 

Section  69.— LIABILITY  OF  HOTEL,  BOARDING- 
HOUSE,  AND  LODGING-HOUSE  KEEPERS  FOR 
LOSS  OF  BAGGAGE.— The  liability  for  loss  of  baggage 
.  begins  at  the  moment  the  hotel,  boarding-house,  or  lodg- 
ing-house keeper  takes  charge  of  the  baggage,  whether  at 
the  house  or  elsewhere.  Therefore,  if  a  porter  solicits  a 
guest  at  a  railroad  train,  or  ferry,  or  depot,  and  receives 
the  traveler's  check,  and  indicates  the  conveyance  which 
the  traveler  shall  take  to  the  house,  the  keeper  is  responsi- 


98  BUSINESS  IjAws  for  business  men. 

ble  from  that  moment  for  the  safe  delivery  of  the  baggage 
at  the  guest's  room,  and,  if  it  is  lost  on  the  way,  the  keeper 
of  the  house  is  liable.  After  the  baggage  has  reached  the 
house,  the  keeper  is  responsible  for  its  safety,  and  will  be 
liable  for  its  loss,  if  the  owner  of  the  baggage  is  not  guilty 
of  any  negligence  which  contributes  to  the  loss.  After  the 
baggage  leaves  the  house,  to  be  taken  to  a  depot,  train, 
or  ferry  by  the  employees  of  the  keeper  of  the  house,  his 
liability  continues  until  the  baggage  safely  reaches  its 
destination  there. 

Section  70.— LIEN  OF  HOTEL,  BOARDING-HOUSE, 
AND  LODGING-HOUSE  KEEPER  ON  BAGGAGE 
AND  OTHER  PROPERTY.— A  hotel,  boarding-house, 
or  lodging-house  keeper  has  a  lien  upon  the  baggage  and 
other  property  of  his  guest,  boarder,  or  lodger,  brought 
into  his  house,  for  the  compensation  due  him.  This  lien 
includes  his  charges  for  accommodation,  board,  and  lodg- 
ing, and  room  rent,  and  such  extras  as  have  been  requested 
and  furnished.  If  the  bill  is  not  paid  when  due,  the  keeper 
of  a  hotel,  boarding-house,  or  lodging-house  has  the  right 
to  take  possession  of  the  baggage  and  other  personal  prop- 
erty of  the  guest,  boarder,  or  lodger,  in  the  house,  and  keep 
possession  until  the  debt  is  paid. 
Civil  Code,  Section  1861. 

Section  71.— SALE  OF  UNCLAIMED  BAGGAGE 
BY  HOTEL,  BOARDING-HOUSE,  AND  LODGING- 
HOUSE  KEEPERS.— Whenever  any  trunk,  carpet-bag, 
valise,  box,  bundle,  or  other  baggage,  in  the  possession  of 
a  hotel,  boarding-house,  or  lodging-house  keeper,  remains 
there  unclaimed  for  the  period  of  sixty  days,  the  property 
may  be  sold  by  him  at  public  auction,  and  out  of  the  pro- 
ceeds of  the  sale  he  may  retain  the  charges  for  storage  and 
the  expenses  of  advertising  and  sale.  A  notice  of  at  least 
four  weeks,  that  the  property  will  be  sold  at  auction,  must 
be  published  in  a  newspaper.  If  there  is  no  newspaper  in 
the  place  where  the  house  is  located,  then  the  notice  must 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  99 

be  published  in  a  newspaper  printed  at  the  nearest  city  or 
town.  The  notice  of  the  sale  must  be  published  once  a 
week  for  four  successive  weeks,  and  the  notice  must  con- 
tain a  description  of  each  trunk,  carpet-bag,  valise,  box, 
bundle,  or  other  baggage,  which  it  is  intended  to  sell,  also 
the  name  of  the  owner,  if  known,  the  name  of  the  person 
selling,  and  the  time  and  place  of  the  sale.  If  there  is  any 
balance  left,  after  retaining  enough  to  pay  storage  charges 
and  the  expenses  of  the  sale,  and  this  balance  is  not  claimed 
by  the  rightful  owner  within  one  week  from  the  day  of 
sale,  the  money  must  be  paid  into  the  Treasurer's  office 
of  the  county  where  the  sale  takes  place;  and  if  no  claim 
is  made  upon  the  County  Treasurer  for  the  money  within 
one  year,  it  goes  into  the  County  General  Fund. 
Civil  Code,  Section  1862.  ' 


Section  72.— STATEMENT  OF  CHARGES,  ETC.,  TO 
BE  POSTED  BY  HOTEL,  BOARDING-HOUSE,  AND 
LODGING-HOUSE  KEEPERS.— A  statement  of  charges 
is  required  by  the  law  to  be  posted  in  every  hotel,  boarding- 
house,  and  lodging-house  in  this  State.  The  Civil  Code, 
Section  1863,  is  as  follows :  "Every  keeper  of  a  hotel,  inn, 
boarding  or  lodging-house  shall  post,  in  a  conspicuous 
place,  in  the  office  or  public  room,  and  in  every  bedroom 
of  said  hotel,  boarding-house,  inn,  or  lodging-house,  a 
printed  copy  of  this  section,  and  a  statement  of  charges, 
or  rate  of  charges,  by  the  day,  and  for  meals  or  items  fur- 
nished, and  for  lodging.  No  charge  or  sum  shall  be  col- 
lected or  received  by  any  such  person  for  any  service  not 
actually  rendered,  or  for  any  item  not  actually  delivered, 
or  for  any  greater  or  other  sum  than  he  is  entitled  to  by 
the  general  rules  and  regulations  of  said  hotel,  inn,  board- 
ing or  lodging  house.  For  any  violation  of  this  section,  or 
any  provision  herein  contained,  the  offender  shall  forfeit 
to  the  injured  party  three  times  the  amount  of  the  sum 
charged  in  excess  of  what  he  is  entitled  to." 


100  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section   72a.--DEFRAUDING   HOTEL   KEEPERS.— 

Any  person  who  obtains  any  food  or  accommodation  at  a 
hotel,  inn,  restaurant,  boarding-house,  or  lodging-house 
without  paying  therefor,  with  intent  to  defraud  the  pro- 
prietor or  manager  thereof,  or  who  obtains  credit  at  a 
hotel,  inn,  restaurant,  boarding-house,  or  lodging-house  by 
the  use  of  any  false  pretense,  or  who,  after  obtaining  credit 
or  accommodation  at  a  hotel,  inn,  restaurant,  boarding- 
house,  or  lodging-house,  absconds  or  surreptitiously  re- 
moves his  baggage  therefrom  without  paying  for  his  food 
or  accommodations,  is  guilty  of  a  misdemeanor.  If  a  per- 
son is  convicted  of  this  offense,  he  is  punishable  by  impris- 
onment in  the  County  Jail  not  exceeding  six  months,  or 
by  fine  not  exceeding  $500,  or  by  both  fine  and  imprison- 
ment. 

Statutes  of  1903,  p.  22;  Penal  Code,  Section  19. 

Landlord  and  Tenant 
Section  73.— LEASES  OF  REAL  ESTATE.— The  Leg- 
islature of  California  has  passed  laws  regulating  by  statute 
the  making  of  leases  of  real  estate.  It  is  the  policy  of  this 
State  to  discourage  long  leases,  which  have  the  effect  of 
tying  up  property  for  many  years,  and  therefore  the  law 
prescribes  the  longest  terms  for  which  real  estate  may  be 
leased  in  California,  and  the  courts  have  sustained  these 
regulations  as  being  wise  and  prudent. 

Section  74.— FOR  WHAT  TERM  LEASES  MAY  BE 
MADE  IN  CALIFORNIA.— A  lease  of  land  for  agricul- 
tural purposes,  in  which  is  reserved  to  the  owner  any  rent 
or  service  of  any  kind,  can  be  made  for  fifteen  years,  and  no 
longer.  A  lease  of  a  town  or  city  lot,  in  which  is  reserved 
to  the  owner  any  rent  or  service  of  any  kind,  can  be  made 
for  fifty  years,  and  no  longer;  provided,  that  the  property 
of  any  municipality,  or  any  minor  or  incompetent  person, 
cannot  be  leased  for  a  longer  period  than  ten  years. 

Statutes  of  1903,  p.  274. 

Act  of  the  Legislature,  approved  April  19,  1909. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  101 

Section  75.  — WHEN  VERBAL  LEASE  MAY  BE 
MADE.  —  A  lease  for  a  term  not  exceeding  one  year  may 
be  made  verbally,  and  need  not  be  witnessed  by  any  writing 
whatever. 

Section  76.— WHEN  LEASE  MUST  BE  IN  WRITING. 

— A  lease   for  a  term   longer  than  one  year  must  be   in 
writing. 

Section  77.— FORM  OF  LEASE.— A  lease  is  not  re- 
quired to  be  in  any  particular  form,  so  long  as  it  can  be 
ascertained  from  its  terms  what  property  is  leased,  the 
rent  reserved,  and  the  term  for  which  the  lease  is  made. 
The  lease  must  be  signed  by  the  parties,  of  course,  but  it 
is  not  required  to  be  acknowledged.  Without  acknowledg- 
ment before  a  Notary,  and  without  recording,  a  lease  is 
good  between  the  parties  to  it.  But,  as  the  rights  of 
creditors,  and  other  claims  of  third  parties,  may  involve 
the  property  in  litigation,  it  is  always  safest  and  best  to 
acknowledge  and  record  a  lease,  as  in  this  manner  a  binding 
notice  of  the  execution  and  terms  of  the  lease  is  given  to 
the  world.  Following  is  a  form  of  lease  for  common  use 
in  California : 

THIS  INDENTURE,  made  the day  of 

,  190. . .,  witnesseth  : — 

That  I,  ,  of 

the  County  of ,  State  of  California. 

lessor,  do  hereby  lease,  demise,  and  let  unto 

,  of  the  same  place,  lessee,  the  follow- 

mg  described  real  estate  situate,  lying,  and  being  in  the 

County  of ,  State  of  California,  and 

particularly  described  as  follows,  to-wit : 

(Here  insert  description  of  property.) 

To  have  and  to  hold,  for  the  terrh  of years,  to-wit : 

from  the day  of ,  190. . ., 

to  the day  of ,  190..., 

yielding  and  paying  therefor  the  rent  of 

Dollars,  Gold  Coin  of  the  United  States 

of  America;   and  the  said  lessee  promises  to  pay  the  said 


102  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

rent  in  such  Gold  Coin,  at  and  in  the  following  times  and 

installments,  namely, Dollars  on  the 

day  of ,  190..., 

Dollars  on  the day  of , 

190. . .,  and  Dollars  on  the  

day  of ,  190... 

(Or,  in  place  of  above,  insert  for  monthly  payments,  as 
follows :   In  such  Gold  Coin,  as  follows,  to-wit :   the  sum  of 

Dollars  per  month,  monthly  in 

advance,  on  the day  of  each  and  every  month 

during  said  term.) 

And  the  said  lessee  promises  to  quit  and  deliver  up  the 
premises  to  the  lessor  or  his  agent  or  attorney,  peaceably 
and  quietly,  at  the  end  of  the  term,  in  as  good  order  and 
condition  (reasonable  use  and  wear  thereof,  and  damages 
by  the  elements  excepted)  as  the  same  are  now  or  may  be 
put  into,  and  to  pay  the  rent  as  above  stated  during  the 
term,  and  not  to  make  or  suffer  any  waste  thereof,  nor  lease, 
nor  underlet,  nor  permit  any  other  person  or  persons  to 
occupy  or  improve  the  same,  or  make,  or  suffer  to  be  made, 
any  alteration  therein,  without  the  consent  of  the  lessor, 
thereto  in  writing  having  been  first  obtained ;  and  that  the 
lessor  may  enter  to  view  and  make  improvements,  and  to 
expel  the  lessee  if  he  shall  fail  to  pay  the  rent  as  aforesaid, 
or  make  or  suffer  any  waste  thereof. 

And  should  default  be  made  in  the  payment  of  any  por- 
tion of  said  rent  when  due,  the  said  lessor,  his  agent  or 
attorney,  may  at  his  option  terminate  this  lease,  and  re-enter 
and  take  possession  of  said  property. 

In  witness  whereof  the  parties  hereto  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 

Section  77a.  — FORM  OF  LEASE  OF  AGRICUL- 
TURAL LANDS.— The  following  is  a  form  of  lease  of 
agricultural  lands : 

THIS  INDENTURE,  made  the day  of 

,  in  the  year  of  our  Lord  one  thousand  nine 

hundred  and ,  between 

,  of  the  County  of 

,  State  of  California,  the  party  of  the  first  part. 

and   ,  of  said 

County  and  State,  the  party  of  the  second  part,  witnesseth : 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  103 

That  the  said  party  of  the  first  part,  for  and  in  considera- 
tion of  the  rents,  covenants,  and  agreements  hereinafter 
mentioned,  reserved  and  contained  on  the  part  of  the  said 
party  of  the  second  part,  to  be  paid,  kept,  and  performed, 
has  granted,  demised,  and  to  farm  let,  and  by  these  presents 
does  grant,  demise,  and  to  farm  let,  unto  the  said  party 
of  the  second  part,  all  those  lots,  pieces,  or  parcels  of  land, 

situate   in  the   County  of    ,   State  of 

California,  and  particularly  described  as  follows,  to-wit: 

(Here  describe  land.) 

for  the  term  of years  from  the 

day  of ,190... 

To  have  and  to  hold  the  said  demised  premises,  unto 
the  party  of  the  second  part,  his  heirs,  executors,  and 
administrators,  for  his  and  their  sole  and  proper  use  and 
benefit,  for  and  during  the  term  aforesaid,  together  with 
all  the  tenements  and  hereditaments  thereunto  appertain- 
ing; and  all  the  stock  and  farming  utensils,  of  every  name 
and  nature,  now  being  in  or  upon  the  same,  belonging  to 
the  said  party  of  the  first  part. 

In  consideration  whereof,  the  said  party  of  the  second 
part  hereby  covenants  and  agrees  to  and  with  the  party  of 
the  first  part,  that  he  will  occupy,  till,  and  in  all  respects 
cultivate  the  premises  above  mentioned,  during  the  term 
aforesaid,  in  a  farmerlike  manner,  and  according  to  the 
usual  course  of  farming  in  the  neighborhood ;  that  he  will 
not  commit  any  waste  or  damage  or  sufifer  any  to  be  done ; 
that  he  will,  at  his  own  cost  and  expense,  keep  the  fences 
and  buildings  on  the  said  premises  in  good  repair,  reason- 
able wear  thereof  and  damages  by  the  elements  excepted ; 
that  he  will  pay  the  party  of  the  first  part  as  rental  for  said 

premises  for  said  term  the  full  sum  of 

Dollars,  Gold  Coin  of  the  United  States,  as  follows,  to-wit: 

Dollars  on  the   

day  of ,  190. . .,  and  the  remainder 

in  equal  yearly  payments  of Dol- 
lars, on  the day  of ,  in  each  and 

every  year  during  said  term  of years ;   that 

this  lease  cannot  and  will  not  be  assigned  without  the 
written  consent  of  the  lessor;  and  that  he  will  give  up 
and  yield  peaceable  possession  of  the  said  premises  at  the 
expiration  of  said  term. 


104  BUSINESS   I^WS   FOR   BUSINESS   MEN. 

In  witness  whereof,  the  parties  hereto  have  hereunto 
set  their  hands  and  seals  the  day  and  year  first  above 
written. 

(Seal.) 

(Seal.) 

(Acknowledgment  in  usual  form.) 

Section  77b.— ASSIGNMENT  OF  LEASE.— The  lessee 
may  make  an  assignment  of  the  lease,  with  the  written 
consent  of  the  lessor ;  or,  if  the  lease  contains  no  provision 
against  assignment  without  consent,  then  the  lessee  may 
make  an  assignment  of  the  lease  without  the  consent  of  the 
lessor. 

Section  77c.— FORM  OF  ASSIGNMENT  OF  LEASE. 

■ — The  following  is  a  form  of  assignment  of  lease : 

KNOW  ALL  MEN  BY  THESE  PRESENTS:   That  I, 

,  of  the  County 

of ,  State  of  California,  for  and  in 

consideration  of  the  sum  of  Dol- 
lars, Gold  Coin  of  the  United  States,  to  me  in  hand  paid 

by  ,  of  the  same 

place,  do  by  these  presents  sell,  convey,  assign,  transfer, 

and  set  over  unto  the  said 

,  a  certain  indenture  of  lease  bearing 

date  the day  of ,  190. . .,  made  by 

,  of  the  County 

of ,  State  of  California,  to  me,  of 

a  certain  lot,  piece,  or  parcel  of  land  situate  in  the  County 
of ,  State  of  California,  and  par- 
ticularly described  as  follows,  to-wit : ., 

(Here  describe  property.) 

for  the  term  of years,  reserving  unto  the 

said   the  rent  of 

Dollars,  payable  in  ....   (monthly  or 

yearly)  payments  of on  the 

day  of in  each  and  every  .... 

(month  or  year) during  said  term,  with  all  and  singular 

the  premises  therein  mentioned  and  described,  and  the 
buildings   thereon,   together   with   the   appurtenances. 

To  have  and  to  hold  the  same  unto  the  said 

,  his  heirs,  executors. 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  105 

and  administrators,  from  the  day  of 

,  190...,  for  and  during  all  the  remainder  yet 

to  come  of  the  said  term  of years, 

mentioned  in  said  indenture  of  lease.     And  I  do  hereby 

covenant  and  agree  to  and  with  the  said 

,  that  the  said  assigned  premises 

now  are  free  and  clear  of  and  from  all  former  and  other 
gifts,  grants,  bargains,  sales,  leases,  judgments,  executions, 
back  rents,  taxes,  assessments,  and  incumbrances,  by  me 
suffered,  made,  or  created. 

In  witness  whereof,  I  have  hereto  set  my  hand  and  seal 
the  dav  and  year  first  above  written. 

(Seal.) 

(Acknowledgment  in  usual  form.) 

Section  78.  — WHAT  REPAIRS  LESSOR  MUST 
MAKE. — The  lessor  of  a  building  intended  for  the  occupa- 
tion of  human  beings  must,  unless  there  is  an  agreement 
to  the  contrary,  put  the  building  into  a  condition  fit  for 
occupation,  and  keep  it  in  tenantable  repair  during  the  term 
of  the  lease.  If  the  building  gets  out  of  repair  by  the  fault 
of  the  tenantj  or  in  a  dangerous  condition  by  reason  of  the 
tenant's  lack  of  ordinary  care,  the  lessor  is  not  bound  to 
make  such  repairs,  but  the  tenant  himself  will  be  liable 
to  make  them. 

Civil  Code,  Sections  1941,  1949. 

Section  79.— WHEN  LESSEE  MAY  MAKE  REPAIRS. 

— When  dilapidations  have  been  occasioned  to  a  dwelling 
which  the  landlord  ought  to  repair,  but  neglects  to  do  so, 
the  tenant  may  make  the  repairs  himself,  provided  the  cost 
of  such  repairs  is  not  more  than  one  month's  rent  of  the 
premises;  and  the  tenant  may  deduct  the  cost  of  such 
repairs  as  he  is  compelled  to  make  from  the  rent.  But, 
before  he  can  legally  make  the  repairs  himself,  so  as  to 
deduct  the  cost  from  the  rent,  he  must  give  reasonable 
notice  to  the  lessor,  stating  the  character  of  the  dilapida- 
tions  and  the  repairs  needed,  and  that  the  lessee  intends  to 
make  the  repairs  if  the  lessor  does  not.  This  notice  may 
be  given  verbally  or  in  writing.     If  after  such  notice  the 


106  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

lessor  refuses  or  neglects  to  make  the  repairs,  the  lessee 
may  vacate  the  premises,  in  which  case  he  will  be  dis- 
charged from  further  payment  of  rent,  or  the  performance 
of  the  other  conditions  of  the  lease.  The  law  gives  the 
tenant  the  privilege  of  vacating  the  premises  in  case  the 
landlord  neglects  to  make  the  repairs  needed,  and  also 
authorizes  him,  if  he  prefers,  to  remain  and  make  the  repairs 
himself,  when  they  do  not  require  an  expenditure  exceeding 
one  month's  rent.  The  law  relates  only  to  buildings  in- 
tended to  be  occupied  by  human  beings,  and  the  Supreme 
Court  of  this  State  has  intimated  in  several  decisions  that 
the  tenant  of  business  property  has  no  right  to  make  repairs 
himself  at  the  expense  of  the  landlord,  and  that  the  lessor 
of  business  property  is  not  required  by  the  law  to  keep  the 
building  in  repair  at  all.  So  far  as  business  property  is 
concerned,  that  is,  buildings  not  intended  for  human  habita- 
tion, for  residence,  the  law  leaves  the  matter  of  repairs  to 
be  determined  solely  by  the  terms  of  the  agreements  in  the 
lease. 

Civil  Code,  Section  1942. 

Section  80.— TERMINATION  OF  LEASE.— A  lease  is 
terminated  by  the  expiration  of  the  term,  or  by  the  hap- 
pening of  some  event  which  works  a  forfeiture  of  the  lease, 
or  by  consent  of  the  parties.  A  lease  is  terminated,  as 
a  matter  of  course,  at  the  end  of  the  term.  So,  too,  it  is, 
of  course,  within  the  power  of  the  parties  to  agree,  before 
the  end  of  the  term,  for  the  termination  of  the  lease  at 
any  time.  The  lease  may  provide  that,  if  any  condition 
of  the  lease  be  broken,  as  for  non-payment  of  the  stipulated 
rent  at  the  time  agreed  upon,  or  for  breach  of  a  covenant 
not  to  assign  the  lease  without  the  consent  of  the  lessor, 
the  lease  shall  be  terminated,  and  a  breach  of  the  condition 
will  terminate  the  lease. 

Section  81.— RENEWAL  OF  LEASE.— A  lease  may 
provide  by  its  terms  for  its  renewal,  and  the  lessee  will 
have  the  right  to  a  renewal  of  the  lease  according  to  the 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  107 

agreement.  But  if  the  lease  gives  the  privilege  of  renewal 
for  a  further  term,  the  lessee  must,  before  the  expiration 
of  the  original  term,  give  the  lessor  notice  that  he  elects 
to  renew  the  lease ;  and  if  he  does  not  give  such  notice,  his 
right  to  insist  upon  the  privilege  of  renewal  is  lost.  If  a 
lessee  of  real  property  remains  in  possession  after  the  ex- 
piration of  the  term,  and  the  lessor  accepts  rent  from  him, 
the  law  presumes  that  the  parties  have  renewed  the  con- 
tract on  the  same  terms  and  for  the  same  time,  but  not 
exceeding  one  month,  when  the  rent  is  payable  monthly, 
nor  in  any  case  exceeding  one  year.  In  all  cases  of  tenancy 
upon  agricultural  lands,  where  the  tenant  has  held  over  and 
retained  possession  for  more  than  sixty  days  after  the 
expiration  of  the  term  without  any  demand  for  possession 
or  notice  to  quit  by  the  landlord,  he  will  be  deemed  to  be 
holding  by  permission  of  the  landlord  and  will  be  entitled 
to  hold  the  land  under  the  terms  of  the  lease  for  another 
full  year.  (Act  of  the  Legislature,  approved  February  28, 
1905.) 

Civil  Code,  Section  1945. 

Section  82.— TERM  OF  HIRING  WHEN  NO  LIMIT 
IS  FIXED. — By  the  statute  of  California  it  is  provided, 
that  a  hiring  of  real  property,  other  than  lodgings  and 
dwelling-houses,  in  places  where  there  is  no  custom  on  the 
subject,  is  presumed  to  be  for  one  year  from  its  commence- 
ment, when  no  limit  is  fixed  to  the  term  by  the  agreement 
between  the  parties.  The  hiring  of  lodgings  or  a  dwelling- 
house  for  an  unspecified  term  is  presumed  to  have  been 
made  for  such  length  of  time  as  the  parties  adopt  for  the 
estimation  of  the  rent.  Thus,  a  hiring  at  a  monthly  rate 
of  rent  is  presumed  to  be  for  one  month.  If  there  is  no 
agreement  respecting  either  the  length  of  time  or  the  rent, 
the  hiring  is  presumed  to  be  monthly. 
Civil  Code,  Sections  1943,  1944. 

Section  83.— WHEN  RENT  IS  PAYABLE.— The  law 

provides,  that  when  there  is  no  usage  or  contract  to  the 


108  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

contrary,  rents  are  payable  at  the  termination  of  the  hold- 
ing, when  it  does  not  exceed  one  year.  If  the  holding  is 
by  the  day,  week,  month,  quarter,  or  year,  rent  is  payable 
at  the  termination  of  the  respective  periods,  as  it  succes- 
sively becomes  due. 

Civil  Code,  Section  1947. 

Section  84.— NOTICE  TO  QUIT.— When  the  term  of 
hiring  of  real  property  is  not  specified  by  the  parties,  to 
terminate  the  hiring,  one  of  the  parties  must  give  notice 
to  the  other  of  his  intention  to  end  the  hiring.  The  tenancy 
may  be  terminated  by  the  landlord  giving  notice  to  the 
tenant,  in  writing,  to  remove  from  the  premises.  The 
notice  must  specify  the  time  within  which  the  tenant  must 
remove  from  the  premises,  and  must  give  him  a  period 
of  not  less  than  one  month.  After  this  notice  has  been 
served,  and  the  period  specified  in  the  notice  has  expired, 
the  landlord  may  proceed  to  recover  possession,  either  by 
re-entering  and  taking  possession  or  by  a  suit  in  court. 
Three  days'  notice  only  is  required  to  be  served  on  a  tenant 
under  a  lease  for  a  stated  term.  If  such  tenant  fails 
to  pay  the  rent  agreed  upon,  the  landlord,  at  any  time 
within  one  year  after  the  rent  becomes  due,  may  give  three 
days'  notice,  in  writing,  requiring  the  payment  of  the  rent 
within  that  time;  and  this  notice  must  also  be  served  on 
any  subtenant  who  may  be  in  possession  of  any  portion 
of  the  premises.  If  the  tenant  has  broken  some  other 
condition  of  the  lease,  the  same  written  notice  must  be 
served  on  him,  and  on  subtenants,  if  there  be  any,  requiring 
him  to  perform  the  conditions  of  the  lease  or  surrender 
the  possession  of  the  property.  The  lease  will  be  saved 
from  forfeiture  if  the  rent  is  paid  or  other  condition  of 
the  lease  performed  within  three  days  after  service  of  the 
notice.  If  the  rent  is  not  paid  or  condition  performed  within 
three  days  after  service  of  the  notice,  the  landlord  may 
recover  possession  of  the  property  in  a  suit  for  unlawful 
detainer. 

Civil  Code,  Sections  789,  1946;    Code  of  Civil  Pro- 
cedure, Section  1161. 


BUSINESS    CONTRACTS  AND   LEGAL   OBLIGATIONS.  109 

(a) — Raising  the  Rent. — The  legislature  has  passed  a 
law  providing  that  a  notice  of  raising  rent  shall  have  legal 
effect.  The  law  reads :  "In  all  leases  of  lands  or  tene- 
ments, or  of  any  interest  therein,  from  month  to  month, 
the  landlord  may,  upon  giving  notice  in  writing  at  least 
thirty  days  before  the  expiration  of  the  month,  change  the 
terms  of  the  lease  to  take  effect  at  the  expiration  of  the 
month.  The  notice,  when  served  upon  the  tenant,  shall 
of  itself  operate  and  be  effectual  to  create  and  establish, 
as  a  part  of  the  lease,  the  terms,  rent,  and  conditions  speci- 
fied in  the  notice,  if  the  tenant  shall  continue  to  hold  the 
premises  after  the  expiration  of  the  month." 

Act  of  the  Legislature,  in  effect  February  26,  1907. 

Section  85.— HOW  NOTICE  TO  QUIT  MUST  BE 
SERVED. — The  notice  to  quit  must  be  served  either  by 
delivering  a  copy  to  the  tenant  personally;  or,  if  he  is  ab- 
sent from  his  place  of  business  or  residence,  by  leavmg  a 
copy  of  the  notice  at  either  place  with  some  person  of  suit- 
able age  and  discretion,  and  sending  a  copy  through  the 
mail,  addressed  to  the  tenant  at  his  place  of  residence;  or  if 
his  place  of  business  or  residence  cannot  be  ascertained, 
or  if  no  person  of  suitable  age  and  discretion  can  be  found 
at  either  place,  the  notice  may  be  served  by  posting  a 
copy  in  a  conspicuous  place  on  the  premises,  and  delivering 
a  copy  to  any  person  found  residing  there,  and  also  sending 
a  copy  through  the  mail  addressed  to  the  tenant  at  the 
place  where  the  property  is  situated. 

Code  of  Civil  Procedure,  Section  1162. 

Section  85a.— FORM  OF  NOTICE  TO  QUIT.— A  notice 
to  quit  need  not  be  in  any  particular  form  to  be  valid. 
It  is  sufficient,  in  any  form,  if  it  shows  on  its  face  that 
possession  is  demanded,  and  that  the  time  fixed  by  the 
statute  is  given.  The  following  is  a  form  of  notice-  to  quit, 
to  be  served  where  the  tenancy  is  for  no  definite  term : 


110  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

,   State   of 

California,   ,  190. . , 

To , 

Take  notice  that  you  are  hereby  required  to  quit  and 
deliver  up  to  me  the  possession  of  the  premises  now  held 
and  occupied  by  you,  known  as 

(Here  describe  the  premises.) 

on  the day  of ,  190. . . 

This  is  intended  as  a  one  month's  notice  to  quit,  for  the 
purpose  of  terminating  your  tenancy. 

Landlord. 

Section  85b.— FORM  OF  NOTICE  TO  PAY  RENT  OR 
SURRENDER  POSSESSION.— The  following  is  a  form 
of  three  days'  notice  to  pay  rent  or  surrender  possession : 

,  State  of  California, 

,  190... 

To , 

You  are  hereby  required  to  pay  the  rent  of  the  premises 
hereinafter  described,  and  which  you  now  hold  possession 

of,  amounting  to  the  sum  of   Dollars, 

being  the  amount  now  due  and  owing  to  me  by  you,  within 
three  days  after  service  of  this  notice  as  required  by  law, 
or  deliver  up  to  me  the  possession  of  the  said  premises. 

Said  premises  are  situated  at 

,  and  described  as  follows,  to-wit : 

(Here  describe  property.) 


Landlord. 

Section  86.— OPTION  TO  PURCHASE  IN  LEASE.— 

The  lessor  may  provide  in  the  lease  that  the  lessee  shall 
have  the  right  to  purchase  the  leased  premises  at  some 
time  within  the  term.  If  the  lessee  concludes  to  take 
advantage  of  the  option  given  him,  he  must  so  notify  the 
lessor,  and  tender  the  purchase  price  agreed  upon  in  the 
lease.  If  he  notifies  the  lessor  that  he  will  take  the  property, 
as  provided  for  in  the  lease,  and  tenders  the  purchase  price. 


BUSINESS   CONTRACTS    AND    LEGAL    OBLIGATIONS.  Ill 

the  lessee  will  have  the  right  to  a  deed,  and  the  lessor  can 
be  compelled  to  execute  his  deed  to  the  property. 

Section  86a.— FORM  OF  LEASE  OF  PERSONAL 
PROPERTY. — The  following  is  a  form  of  lease  of  personal 
property : 

THIS  INDENTURE,  made  this day  of 

,  190 . . ,  between ,  of 

the  County  of ~  . . . .,  State  of  California,  the 

party  of  the  first  part,  and ,  of  the 

same  place,  witnesseth : 

That  in  consideration  of  the  rents,  covenants  and  agree- 
ments to  be  paid  and  performed  on  the  part  of  the  said  party 
of  the  second  part,  the  said  party  of  the  first  part  does 
hereby  lease  to  the  party  of  the  second  part  all  those  certain 

goods  and  chattels,  situate  at ,  and 

particularly  described  as  follows,  to  wit : 

(Here  give  a  particular  description  of  each  article  of  per- 
sonal property.) 

To  have  and  to  hold  the  same  to  the  said  lessee,  for  the 

term  of years,  beginning 

,   190. .,  and  ending   

,  190 .. ,  the  said  lessee  paying 

therefor  the  yearly  rent  of Dollars 

during  the  said  term. 

And  the  said  lessee  covenants  and  agrees  with  the  said 
lessor  that  he  will  pay  the  rent  aforesaid,  in  monthly  pay- 
ments of Dollars  each,  on  the  first  day 

of  each  and  every  month  during  said  term ;  and  that  he  will 
not  assign  nor  underlet  this  lease  or  the  said  goods  and 
chattels,  nor  any  part  thereof,  without  the  written  consent 
of  said  lessor;  and  that  he  will,  at  his  own  expense,  replace 
any  and  all  of  said  goods  and  chattels  which  shall  be  lost,  or 
carelessly  or  accidentally  injured,  during  the  said  term; 
and  at  the  expiration  of  said  term,  or  sooner  termination  of 
this  lease,  he  will  restore  the  said  goods  and  chattels  to  the 
said  lessor,  in  the  like  good  order  in  which  they  now  are, 
wear  and  diminution  resulting  from  reasonable  use*  and 
unavoidable  casualties  excepted.  And  it  is  agreed  that,  un- 
til the  expiration  of  said  term,  or  until  condition  broken, 
said  party  of  the  second  part  shall  peaceably  retain  posses- 


112  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

sion  of  said  goods  and  chattels,  but  in  case  any  one  or  more 
of  the  conditions  of  this  lease  are  broken  by  the  said  party 
of  the  second  part,  the  party  of  the  first  part  may  at  any 
time,  day  or  night,  enter  the  place  where  said  goods  and 
chattels,  or  any  part  thereof,  may  be,  and  remove  the  same, 
and  he  may  use  all  necessary  force  to  remove  the  property 
herein  described. 

And  it  is  further  agreed  that  time  is  of  the  essence  of  this 
contract. 

In  witness  whereof  the  parties  hereto  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 

Section  86b.— TENANT  MUST  DELIVER  NOTICE 
SERVED  ON  HIM. — Every  tenant  who  receives  notice 
of  any  proceeding  to  recover  the  real  property  occupied 
by  him,  or  its  possession,  must  inform  his  landlord  imme- 
diately, and  must  also  deliver  to  his  landlord  the  notice 
he  received,  if  in  writing;  and  if  the  tenant  fails  to  inform 
his  landlord  of  any  such  notice,  or  to  deliver  the  notice  to 
him,  if  in  writing,  he  will  be  liable  to  the  landlord  for  all 
damages  which  he  may  sustain  by  reason  of  his  failure. 
.     Civil  Code,  Section  1949. 

Section  87.  —  FORM  OF  FARMING  LEASE  ON 
SHARES. — The  following  is  a  form  of  farming  lease  on 
shares : 

THIS  INDENTURE,  made  the day  of 

,   190.  .,  between 

of  the  County  of , 

State  of  California,  the  party  of  the  first  part,  and 

,  of  the  same  place,  the  party  of  the 

second  part,  witnesseth : 

That  the  said  party  of  the  first  part,  for  and  in  considera- 
tion of  the  rents,  covenants,  and  agreements  hereinafter 
mentioned,  reserved  and  contained  on  the  part  of  the  said 
party  of  the  second  part,  his  executors  or  administrators, 
to  be  paid,  kept,  and  performed,  has  granted,  demised,  and 
to  farm  let,  unto  the  said  party  of  the  second  part,  his  ex- 
ecutors or  administrators,  all  those  certain  lots,  pieces  or 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  113 

parcels  of  land  situate,  lying  and  being  in  the  County  of 

,  State  of  California,  and  particularly 

described  as  follows,  to  wit : 

(Here  describe  the  land.) 

To  have  and  to  hold  the  said  demised  premises,  unto  the 
party  of  the  second  part,  his  heirs,  executors,  or  administra- 
tors, for  his  and  their  sole  and  proper  use  and  benefit,  for 

and  during  the  term  of years,  beginning 

,  190 .. ,  and  ending 

190..,  together  with  all  the  tenements  and  hereditaments 
thereunto  appertaining,  and  all  the  stock  and  farming  uten- 
sils, of  every  name  and  nature,  now  being  in  or  upon  the 
same,  belonging  to  the  said  party  of  the  first  part. 

In  consideration  whereof,  the  said  party  of  the  second 
part  hereby  covenants  and  agrees  to  and  with  the  said  party 
of  the  first  part,  that  he  will  occupy,  till  and  in  all  respects 
cultivate  the  premises  above  mentioned,  during  the  term 
aforesaid,  in  a  farmerlike  manner,  and  according  to  the 
usual  course  of  farming  practiced  in  the  neighborhood ;  that 
he  will  not  commit  any  waste  or  damage,  or  suffer  any  to 
be  done ;  that  he  will,  at  his  own  cost  and  expense,  keep  the 
fences  and  the  buildings  on  the  said  premises  in  good  re- 
pair, reasonable  wear  thereof  and  damages  by  the  elements 
excepted;  and  that  he  will  deliver  to  the  said  party  of  the 
first  part,  his  heirs,  executors,  or  administrators,  or  to  his 
or  their  order,  each  year  during  the  term  of  this  lease,  one 
equal  (here  insert  share  agreed  on)  of  all  the  proceeds  and 
crops  produced  on  the  said  farm  and  premises  aforesaid,  of 
every  name,  kind  and  description,  to  be  divided  on  the  said 
premises,  in  stack  and  sack,  according  to  the  usual  course 
and  custom  of  making  such  divisions  in  the  neighborhood, 
and  in  a  seasonable  time  after  such  crop  or  crops  shall  have 
been  gathered  and  harvested. 

It  is  further  understood  and  agreed  between  the  afore- 
said parties,  that  the  party  of  the  second  part  shall  find  all 
seed  or  seeds  necessary  to  be  sown  on  said  premises ;  that 
the  party  of  the  second  part  is  to  do,  or  cause  to  be  done, 
all  necessary  v/ork  and  labor  in  and  about  the  cultivation 
of  the  said  premises;  that  he  is  to  have  full  permission  to 
inclose,  pasture,  or  till  and  cultivate,  the  said  premises,  so 
far  as  the  same  may  be  done  without  injury  to  the  reversion, 
and    to    cut    all    necessary  timber  for  firewood,   farming 


114  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

purposes  and  repairing  fences ;  and  that  he  is  to  give  up  and 
yield  peaceable  possession  of  the  said  premises  at  the  expir- 
ation of  said  term.  Said  first  party  shall  furnish  on  said 
premises,  at  the  proper  time  in  each  year  during  the  term 
of  this  lease,  sacks  sufficient  to  hold  all  the  grain  coming 
to  said  first  party. 

In  witness  whereof  the  parties  hereto  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 

(Acknowledgment  in  usual  form.) 

Sale  of  Real  Property 
Section  87a.— TRANSFER  BY  DEED.— The  title  to 
real  property  is  transferred  from  one  to  another  by  an 
instrument  in  writing  called  a  deed.  A  deed  must  be 
signed  by  the  vendor,  and  acknowledged  by  him  before 
a  Notary,  or  other  officer  having  authority  to  take 
acknowledgments,  and  must  be  recorded  in  the  office  of  the 
County  Recorder  of  the  county  where  the  land  is  situated. 

(a).— CONDITION  AGAINST  SALE  OF  LIQUOR.— 

Conditions  inserted  in  a  deed  that  intoxicating  liquors  shall 
not  be  sold  on  the  conveyed  premises,  and  providing  that 
the  estate  granted  shall  become  forfeited  for  a  breach 
thereof,  are  lawful  and  enforceable.  (Decided  by  the 
Supreme  Court  of  California,  in  the  case  of  Burdell  vs. 
Grandi,  which  decision  is  printed  in  Volume  XXXIV  of 
California  Decisions,  page  519.) 

Section  87b.— DEED  TO  COMMUNITY  PROPERTY. 

— Property  acquired  by  husband  and  wife,  during  their 
marriage,  by  their  joint  efforts,  is  community  property. 
All  property  acquired  during  marriage  is  community  prop- 
erty, except  property  owned  by  either  before  marriage,  or 
property  acquired  by  either  after  marriage  by  gift,  will, 
or  as  heir  of  a  deceased  person.  The  husband  may  sell 
the  community  property,  for  an  adequate  consideration, 
and  make  a  valid  deed  signed  by  himself  alone.  But  he 
cannot  make  a  deed  of  gift  of  the  community  property, 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS,  115 

without  his  wife's  consent;  nor  can  he  sell  the  community 
property  at  all,  without  the  wife's  consent,  unless  he  receives 
a  fair  and  reasonable  price  for  the  property.  Considering 
that  there  might  be,  in  case  of  disputes,  a  great  variety 
of  opinions  as  to  what  is  an  adequate  price  for  a  piece 
of  property,  the  most  conservative  business  men  always 
require  the  wife's  signature  to  the  husband's  deed  to  com- 
munity property,  even  where  the  law  does  not  require  it. 
Her  signature  can  do  no  harm,  and  may  prevent  costly 
disputes.  There  are  cases,  however,  where  the  husband 
desires  to  sell  community  property,  and  the  wife  refuses 
to  sign  the  deed.  In  this  case,  if  the  property  is  com- 
munity property,  and  if  the  price  paid  is  the  full  value  of 
the  property,  the  title  of  the  purchaser  will  be  absolutely 
good,  with  the  husband's  deed  alone,  without  the  wife's 
signature. 

Section  87c.— DEED  TO  SEPARATE  PROPERTY.— 

Either  husband  or  wife  has  the  right  to  deed  his  or  her 
separate  property,  without  the  consent  of  the  other,  and 
without  the  signature  of  the  other  to  the  deed. 

Section  87d.— DEED  OF  GIFT.— A  property  considera- 
tion is  not  necessary  to  a  valid  deed  in  California.  A  deed 
of  gift,  for  love  and  affection,  may  be  made  by  one  person 
to  another  of  real  property,  and  the  deed  will  be  for  a 
consideration  which  the  law  recognizes  as  sufficient  and 
will  sustain. 

Section  87e.— FORM  OF  DEED  OF  GIFT.— The  fol- 
lowing is  a  form  of  deed  of  gift,  for  use  in  the  State  of 
California : — 

THIS  INDENTURE,  made  the day  of  ... . 

,  190. . .,  between 

,  of  the  County  of ,  State 

of  California,  the  party  of  the  first  part,  and 

,  of  the  same  place,  the  party  of  the 

second  part,  witnesseth  : — 

That  the  said  party  of  the  first  part,  for  and  in  considera- 
tion of  the  love  and  affection  which  the  said  party  of  the 


116  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

first  part  has  and  bears  unto  the  said  party  of  the  second 
part,  as  also  for  the  better  maintenance,  support,  protec- 
tion, and  livelihood  of  the  said  party  of  the  second  part, 
does  by  these  presents  give,  grant,  alien,  and  confirm  unto 

the  said  party  of  the  second  part,  and  to heirs  and 

assigns  forever,  all  those  certain  lots,  pieces,  or  parcels  of 

land  situate,  lying,  and  being  in  the  County  of 

,  State  of  California,  bounded  and  particularly 

described  as  follows,  to-wit : 

(Here  describe  property.) 

Together  with  all  and  singular  the  tenements,  heredita- 
ments, and  appurtenances  thereunto  belonging  or  in  any 
wise  appertaining,  and  the  reversion  and  reversions,  re- 
mainder and  remainders,  rents,  issues,  and  profits  thereof 

To  have  and  to  hold,  all  and  singular  the  said  premises, 
together  with  the  appurtenances,  unto  the  said  party  of  the 
second  part, heirs  and  assigns  forever. 

In  witness  whereof,  the  said  party  of  the  first  part  has 

hereunto  set hand  and  seal  the  day  and  year  first 

above  written. 

(Seal.) 

STATE  OF  CALIFORNIA,  I 
County  of ^  ^^• 

On  this day  of ,  A.  D." 

one  thousand  nine  hundred  and , 

before  me, ,  a 

Notary  Public  in  and  for  said County 

and  State,  residing  therein,  duly  commissioned  and  sworn, 

personally  appeared 

,  known  to  me  to  be  the  person. . .  whose 

name subscribed  to  and  who  executed  the 

within  instrument,  and acknowledged  to  me 

that executed  the  same. 

In  witness  whereof,  I  have  hereunto  set  my  hand  and 

affixed  my  official  seal,  at  my  office  in  the 

County  of ,  the  day  and  year  in 

this  certificate  first  above  written. 

Notary  Public  in  and  for  the 

County  of ,  State  of 

California. 
Commission  expires ,  19. . . . 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  117 

Section  87f.  —  BARGAIN    AND    SALE   DEED.  —  The 

most  common  form  of  transfer  of  real  estate  is  by  bargain 
and  sale  deed.  In  such  a  deed,  the  true  consideration  need 
not  be  stated.  If  the  consideration,  for  instance,  is  $500, 
it  may  be  stated  in  the  deed  at  $1.00,  or  any  other  sum. 
The  law  presumes  that  an  adequate  consideration  was  given, 
and  if  that  should  become  a  disputed  question,  the  law 
allows  proof  to  be  made  as  to  what  the  consideration  really 
was. 

Section  87g.— FORM  OF  BARGAIN  AND  SALE 
DEED. — The  following  is  a  form  of  bargain  and  sale 
deed : — 

THIS  INDENTURE,  made  the day  of 

,  190. . .,  between 

,  of  the  County  of ,  State 

of  California,  the  party  of  the  first  part,  and 

,  of  the  same  place,  the  party 

of  the  second  part,  witnesseth  : — 

That  the  said  party  of  the  first  part,  for  and  in  considera- 
tion of  the  sum  of Dollars,  Gold 

Coin  of  the  United  States  of  America,  to  him  in  hand  paid 
by  the  said  party  of  the  second  part,  the  receipt  whereof 
is  hereby  acknowledged,  does  by  these  presents  grant,  bar- 
gam,  sell,  and  convey  unto  the  said  party  of  the  second  part, 
and  to  his  heirs  and  assigns  forever,  all  those  certain  lots, 
pieces,  or  parcels  of  land  situate,  lying,  and  being  in  the 

County  of ,  State  of  California,  and  bounded 

and  particularly  described  as  follows,  to-wit :  

(Here  describe  the  land.) 

Together  with  all  and  singular  the  tenements,  heredita- 
ments, and  appurtenances  thereunto  belonging,  or  in  any 
wise  appertaining,  and  the  reversion  and  reversions,  re- 
mainder and  remainders,  rents,  issues,  and  profits  thereof. 

To  have  and  to  hold,  all  and  singular  the  said  premises, 
together  with  the  appurtenances,  unto  the  said  party  of  the 
second  part,  his  heirs  and  assigns  forever. 

In  witness  whereof,  the  said  party  of  the  first  part  has 
hereunto  set  his  hand  and  seal  the  day  and  year  first  above 
written. 

(Seal.) 


118  BUSINESS  LAWS  FOB  BUSINESS   MEN. 


*■'     i  SS. 


STATE  OF  CALIFORNIA, 
County  of 

On  this day  of ,  A.  D.  one  thousand  nine 

hundred  and ,  before  me, 

,  a  Notary  Public  in  and  for  said 

County  and  State,  residing  therein,  duly  commissioned  and 

sworn,  personally  appeared 

,  known  to  me  to  be  the  person.  .  whose 

name subscribed  to,  and  who  executed  the 

within  instrument,  and  ,  acknowledged  to  me 

that executed  the  same. 

IN   WITNESS   WHEREOF,   I   have  hereunto   set   my 

hand  and  affixed  my  official  seal,  at  my  office  in  the 

County  of ,  the  day  and 

year  in  this  certificate  first  above  written. 

Notary  Public  in  and  for  the County 

of   ,  State  of  California. 

Commission  expires ,  19. . . . 


Section  87h,— QUITCLAIM  DEED.— It  may  occur  that 
the  grantor  has  some  interest  in  real  estate,  which  he 
wishes  to  transfer,  yet  the  interest  is  not  so  exactly  ascer- 
tained as  to  be  capable  of  definite  description.  In  this 
event,  it  is  usual  to  make  a  quitclaim  deed,  the  grantor 
transferring  all  his  right,  title,  or  claim  in  or  to  the  land, 
and  relinquishing  all  his  claim  or  right,  whatever  it  may 
be,  to  his  grantee. 

Section  87i.— FORM  OF  QUITCLAIM  DEED.— The 
following  is  a  form  of  quitclaim  deed : — 

THIS  INDENTURE,  made  the day  of 

190. . .,  between ,  of  the  County  of 

.,  State  of  California,  the  party  of  the 

first  part,  and  ,  of  the 

same  place,  the  party  of  the  second  part,  witnesseth : — 

That  the  said  party  of  the  first  part,  for  and  in  considera- 
tion of  the  sum  of Dollars,  Gold  Coin  of 

the  United  States  of  America,  to in  hand  paid  by 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  119 

the  said  party  of  the  second  part,  the  receipt  whereof  is 
hereby  acknowledged,  has  remised,  released,  and  forever 
quitclaimed,  and  by  these  presents  does  remise,  release,  and 
forever  quitclaim,  unto  the  said  party  of  the  second  part, 

and  to   heirs  and  assigns,  all  those  certain  lots, 

pieces,  or  parcels  of  land,  situate,  lying,  and  being  in  the 

County  of ,  State  of  California,  arid 

bounded  and  particularly  described  as  follows,  to-wit :  . . . . 

(Here  describe  land.) 

Together  with  all  and  singular  the  tenements,  heredita- 
ments, and  appurtenances  thereunto  belonging,  or  in  any 
wise  appertaining,  and  the  reversion  and  reversions,  re- 
mainder and  remainders,  rents,  issues,  and  profits  thereof. 

To  have  and  to  hold,  all  and  singular  the  said  premises, 
together  with  the  appurtenances,  unto  the  said  party  of  the 
second  part,  heirs  and  assigns  forever. 

In  witness  whereof,  the  said  party  of  the  first  part  has 

hereunto  set hand  and  seal  the  day  and  year  first 

above  written. 

(Seal.) 

STATE  OF  CALIFORNIA   I  gg 
County  of j 

On  this day  of ,  A.  D.  one  thousand  nine 

hundred  and ,  before  me,  .' • 

,  a  Notary  Public  in  and  for  said  County  and  State, 

residing  therein,  duly  commissioned  and  sworn,  personally 

appeared ,  known  to 

me  to  be  the  person.  . . .  whose  name subscribed 

to  and  who  executed  the  within  instrument  and  

acknowledged  to  me  that executed  the  same. 

IN  WITNESS  WHEREOF,  I  have  hereunto  set  my 
hand  and  affixed  my  official  seal  at  my  office  in  the  County 

of ,  the  day  and  year  in  this  certificate 

first  above  written. 


Notary  Public  in  and  for  the  County  of , 

State  of  California. 
Commission  expires ,  19. . . . 

Section  87j.— WARRANTY    DEED.— The  purchaser  of 
real  estate  may  insist  upon  an  agreement  on  the  part  of 


120  BUSINESS   LAWS   FOR   BUSINESS    MEN. 

the  seller  to  defend  the  title,  to  secure  him  in  the  possession, 
in  the  event  of  his  possession  being  invaded  or  questioned 
by  a  third  person  after  the  sale.  The  parties  to  a  sale 
of  land  may  lawfully  make  an  agreement  whereby  the 
seller  will  be  bound  to  defend  the  title  and  possession  in 
the  purchaser.  This  agreement  is  evidenced  by  a  warranty 
deed,  conveying  the  property,  and  at  the  same  time  binding 
the  seller  to  stand  ready  to  defend  the  right  of  possession 
in  the  purchaser,  should  it  be  attacked. 

Section  87k.— FORM  OF  WARRANTY  DEED.— The 

following  is  a  form  of  warranty  deed : — 

THIS  INDENTURE,  made  the day  of 

1 90. . .,  between  ,  of  the  County  of 

,  State  of  California,  the  party  of  the 

first  part,  and 

of  the  same  place,  the  party  of  the  second  part,  wit- 
nesseth : — 

That  the  said  party  of  the  first  part,  for  and  in  considera- 
tion of  the  sum  of Dollars,  Gold  Coin 

of  the  United  States  of  America,  the  receipt  whereof  is 
hereby  acknowledged,  does  by  these  presents  grant,  bargain, 
sell,  and  convey  unto  the  said  party  of  the  second  part,  and 

to heirs  and  assigns  forever,  all  those  certain  lots, 

pieces,  or  parcels  of  land,  situate,  lying,  and  being  in  the 

County  of ,  State  of  California,  and 

bounded  and  particularly  described  as  follows,  to-wit :  . . . . 

(Here  describe  land.) 

Together  with  all  and  singular  the  tenements,  heredita- 
ments, and  appurtenances  thereunto  belonging,  or  in  any 
wise  appertaining,  the  reversion  and  reversions,  remainder 
and  remainders,  rents,  issues,  and  profits  thereof. 

To  have  and  to  hold,  all  and  singular,  the  above  men- 
tioned and  described  premises,  together  with  the  appur- 
tenances, unto  the  said  party  of  the  second  part,  and  to 
heirs  and  assigns   forever. 

And  the  said  party  of  the  first  part,  and heirs,  the 

said  premises,  in  the  quiet  and  peaceable  possession  of  the 

said  party  of  the  second  part, heirs,  and  assigns, 

against  the  said  party  of  the  first  part,  and  his  heirs,  and 
against    all    and   every    person    or    persons    whomsoever. 


''   Iss. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  121 

lawfully  claiming  or  to  claim  the  same,  shall  and  will  war- 
rant, and  by  these  presents  forever  defend. 

In  witness  whereof  the  said  party  of  the  first  part  has 

hereunto  set hand  and  seal  the  day  and  year  first 

above  written. 

(Seal.) 

STATE  OF  CALIFORNIA, 
County  of 

On  this day  of ,  A.  D.  one  thousand  nine 

hundred  and ,  before  me, 

,  a  Notary  Public  in  and  for  said  County  and 

State,  residing  therein,  duly  commissioned  and  sworn,  per- 
sonally appeared  , 

known  to  me  to  be  the  person.  .  whose  name 

subscribed  to,   and  who   executed  the   within   instrument, 

and acknowledged  to  me  that executed 

the  same. 

IN   WITNESS   WHEREOF,   I   have  hereunto   set   my 
hand  and  affixed  my  official  seal  at  my  office  in  the  County 

of ,  the  day  and  year  in  this  certificate 

first  above  written. 


Notary  Public  in  and  for  the  County  of , 

State  of  California. 
Commission  expires ,  19. . . . 

Section  87kk.— CORPORATION  DEED.— A  deed  may 
be  made  by  a  corporation,  but  the  deed  must  be  authorized 
by  a  resolution  of  the  Board  of  Directors.  When  the  Board 
of  Directors  of  a  corporation  has  passed  a  resolution  di- 
recting the  execution  of  a  deed,  the  President  may  sign, 
execute,  and  deliver  the  deed  for  the  corporation. 

Section  87kkk.— FORM  OF  CORPORATION  DEED 
AND  ACKNOWLEDGMENT.— The  following  is  a  form 
of  corporation  deed,  and  the  acknowledgment  thereto.  The 
acknowledgment  is  difTerent  from  the  acknowledgment  to 
the  deed  of  an  individual,  in  that  it  must  show  the  official 
capacity  of  the  person  executing  it : 

THIS  INDENTURE,  made  the day  of 

190....,  between   , 


122  BUSINESS    LAWS   FOR  BUSINESS   MEN. 

a  corporation  duly  authorized  under  the  laws  of  the  State 
of    California,  whose    principal    place    of    business    is    at 

,  in  the  County  of 

State  of  California,  party  of  the  first  part,  and 

,  of  the  same  place,  party  of  the  second  part, 

Witnesseth : 

That,  whereas,  the  said  party  of  the  first  part  is  a  cor- 
poration duly  incorporated  and  existing  under  and  by  virtue 
of  the  laws  of  the  State  of  California;  and,  whereas,  in 
pursuance  of  the  statutes  in  such  cases  made  and  provided, 
it  has  acquired  and  is  the  owner  of  the  land  and  premises 
hereinafter  described ;  and  whereas,  the  Board  of  Directors 

of  said  corporation,  duly  assembled,  on  the 

day  of ,  duly  passed  the  following  resolutions, 

to-wit : 

(Here  insert  in  full  the  resolution  adopted  by  the  Board  of 
Directors  authorizing  the  sale  of  the  land.) 


Now,  therefore,  in  pursuance  of  said  resolution  afore- 
said, and  in  consideration  of  the  sum  of 

Dollars,  gold  coin  of  the  United  States  of 

America,  to  it  in  hand  paid  by  the  said  party  of  the  second 
part,  the  receipt  whereof  is  hereby  acknowledged,  the  said 
party  of  the  first  part  does  by  these  presents  grant,  bargain, 
sell,  and  convey  unto  the  said  party  of  the  second  part,  and 
to  his  heirs  and  assigns  forever,  all  those  certain  lots,  pieces, 
or  parcels  of  land  situate,  lying,  and  being  in  the  County 

of ,  State  of  California,  and  bounded  and 

particularly  described  as  follows,  to-wit :  

(Here  describe  the  land.) 

Together  with  all  and  singular  the  tenements,  heredita- 
ments, and  appurtenances  thereunto  belonging,  or  in  any 
wise  appertaining,  and  the  reversion  and  reversions,  re- 
mainder and  remainders,  rents,  issues,  and  profits  thereof. 

To  have  and  to  hold,  all  and  singular,  the  said  premises, 
together  with  the  appurtenances,  unto  the  said  party  of  the 
second  part,  his  heirs  and  assigns  forever. 

IN  WITNESS  WHEREOF,  the  said  party  of  the  first 
part,  by  resolution  of  its  Board  of  Directors,  has  caused 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  123 

these  presents  to  be  subscribed  by  its  President,  and  its 
corporate  name  and  seal  to  be  hereunto  affixed,  the  day  and 
year  first  above  written. 

(Seal.) 

President. 
STATE  OF  CALIFORNIA,  }  gg 

County  of ) 

On  this day  of ,  in  the  year  190. . ., 

before  me, ,  a  Notary  Public  in  and  for 

the  said  County  and  State,  residing  therein,  duly  commis- 
sioned and  sworn,  personally  appeared , 

known  to  me  to  be  the  President  of  the  corporation  de- 
scribed in  and  that  executed  the  within  instrument,  and  also 
known  to  me  to  be  the  person  who  executed  it  on  behalf 
of  the  corporation  therein  named,  and  he  acknowledged  to 
me  that  such  corporation  executed  the  same. 

IN   WITNESS   WHEREOF,   I   have   hereunto   set   my 
hand  and  affixed  my  official  seal  at  my  office  in  the  County 

of ,  the  day  and  year  in  this  certificate  first 

above  written. 


Notary  Public  in  and  for  the  County  of 

,  State  of  California. 

Commission  expires ,  190 

Section  87  1.— DEED  IN  ESCROW.— A  deed  may  be 
deposited  by  the  grantor  with  a  third  person,  to  be  delivered 
to  the  grantee  on  performance  of  a  condition,  to  take  effect 
when  the  condition  is  performed.  Thus,  a  deed  deposited 
with  a  bank,  to  be  delivered  to  the  grantee  upon  the  pay- 
ment of  so  much  money,  or  a  deed  placed  in  the  hands 
of  a  third  party,  to  be  delivered  to  the  grantee  upon  the 
death  of  the  grantor,  will  take  eflfect  when  the  money  ii 
paid,  or  when  the  death  of  the  grantor  occurs.  While  in 
the  possession  of  the  third  person,  and  subject  to  the  con- 
dition, the  deed  is  called  an  escrow. 
Civil  Code,  Section  1057. 

Section  87m.— EFFECT  OF  DEED  IN  ESCROW.— It 

often  occurs  that  a'  person  will  make  a  deed  in  escrow, 
without  sufficient  knowledge  of  the  effect  of  his  act,  and 


124  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

when,  if  he  knew  the  law,  the  deed  would  not  have  been 
made.  Many  people  suppose  that  a  deed  can  be  made,  and 
placed  in  the  hands  of  a  third  person,  to  be  delivered  upon 
the  death  of  the  maker,  and  still  be  taken  out  of  escrow 
at  any  time.  But  this  is  not  the  law.  On  the  contrary, 
it  is  the  law  of  California,  that  when  the  owner  of  land 
makes  a  deed,  and  delivers  it  to  another,  with  instructions 
only  to  hold  without  recording  until  his  death,  and  then 
to  deliver  it  to  the  grantee,  the  grantor  cannot  recall  the 
deed,  nor  alter  its  provisions,  and  he  has  no  interest  in 
the  land  left,  except  a  life  estate.  His  deed  passes  the 
title  to  the  land  at  once  to  the  grantee,  qualified  only  by 
the  right  of  the  grantor  to  use  and  occupy  the  property, 
or  take  and  receive  the  rents  and  profits,  during  his  life. 
The  person  with  whom  such  a  deed  is  left  in  escrow  has 
no  right  to  give  it  back  to  the  grantor,  if  the  latter  should 
change  his  mind  about  it.  The  act  of  the  grantor,  in  making 
such  a  deed,  delivered  to  a  third  person  in  escrow,  is 
irrevocable  by  him,  no  matter  how  much  he  would  like  to 
take  it  back,  or  how  deeply  he  may  regret  his  act.  (Decided 
by  the  Supreme  Court  of  California,  in  the  case  of  Bury 
vs.  Young,  which  decision  is  printed  in  Volume  98  of  the 
California  Reports,  page  446.) 

Section  87n.— DEED  CANNOT  BE  CANCELED.— If  a 

deed  is  made,  executed,  and  acknowledged,  and  delivered, 
but  not  recorded,  the  property  cannot  be  transferred  back 
by  a  redelivery  of  the  deed,  or  by  its  cancellation.  The 
grantee  in  such  a  case  must  make  a  deed  back  to  the  grantor, 
and  both  deeds  must  then  be  recorded. 
Civil  Code,  Section  1058. 

Section  87  nn.— POWER  OF  ATTORNEY  TO  MAKE 
DEED. — The  owner  of  real  estate  may  authorize  another 
person  to  sell,  and  to  make  and  execute  a  deed  conveying 
his  land,  for  and  on  his  behalf.  This  authority  he  may 
delegate  to  another  by  means  of  a  power  of  attorney.    The 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  125 

power  of  attorney  must  be  executed  and  acknowledged  in 
the  same  manner  as  a  deed. 

The  following  is  a  short  form  of  power  of  attorney  author- 
izing an  agent  to  sell  and  convey  real  estate : 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  that  I 

,  of  the  County  of ,  State  of 

California,  do  hereby  appoint ,  of  the 

same  place,  my  attorney  in  fact,  for  and  in  my  name  and 
stead,  and  on  my  behalf,  to  sell,  receive  the  price  thereof, 
and  to  make,  execute,  and  deliver  a  deed  therefor,  all  that 
certain  piece,  lot,  or  parcel  of  land,  situate  in  the  County 
of ,  State  of  California,  particularly  de- 
scribed as  follows,  to  wit : 

(Here  insert  description  of  land.) 

for  the  price  of Dollars. 

Giving  to  my  said  attorney  full  power  and  authority  for 
and  in  my  name  and  behalf,  to  lawfully  do  whatsoever  may 
be  necessary  and  proper  in  the  sale  of  said  land  and  in  the 
making,  executing,  and  delivering  of  a  deed  of  conveyance 
thereof,  in  my  name  and  stead;  hereby  confirming  and 
approving  whatsoever  my  said  attorney  may  lawfully  do 
in  and  about  the  premises,  as  fully  to  all  intents  and 
purposes  as  though  done  in  my  own  proper  person. 

IN  WITNESS  WHEREOF,  I  have  hereunto    set    my 

hand  and  seal  this day  of ,  190. . 

(Seal.) 

(Must  be  acknowledged  in  the  same  form  as  a  deed.) 

Installment  Sales  of  Real  Estate 

Section  87  c— SALES  ON  THE  INSTALLMENT 
PLAN. — Real  estate  may  be  sold  on  the  installment  plan, 
the  purchaser  agreeing  to  make  certain  payments  at  stated 
times,  the  title  to  remain  in  the  vendor  until  full  payment 
is  made.  This  is  what  is  termed  a  conditional  sale.  The 
buyer  may  be  let  into  the  possession  of  the  property,  and 
yet  the  legal  title  will  remain  with  the  seller,  if  it  is 
expressed  in  the  agreement  of  sale  that  all  installments 
must  be  paid  before  the  title  will  pass  or  deed  be  given. 


126  BUSINESS  LAW  FOR   BUSINESS  MEN. 

The  agreement  for  sale  of  real  property  on  the  installment 
plan  must  be  in  writing,  and  the  agreement  should  be  re- 
corded. If  recorded,  it  is  notice  to  the  world  that  the 
grantee  has  a  claim  upon  the  land,  and  the  right  to  obtain 
the  legal  title  by  making  stipulated  payments. 

Section  87  p.  —  PAYMENT    OF    INSTALLMENTS.— 

Where  the  agreement  provides  that  time  shall  be  of  the 
essence  of  the  contract,  and  that  payments  shall  be  made 
in  installments  at  specified  times,  it  is  essential  that  the 
purchaser  pay  each  installment  as  it  becomes  due,  if  he 
wishes  to  keep  the  contract  good.  He  must  pay,  for  if  he 
does  not,  the  seller  may  rescind  the  contract  and  forfeit 
the  payments  already  made. 

Section  87q.  —  VENDOR'S  REMEDY  IF  INSTALL- 
MENTS ARE  NOT  PAID.— If  the  purchaser  fails  to  pay 
any  installment,  when  due,  the  seller  may  rescind  the  con- 
tract. He  cannot  do  this  arbitrarily,  however,  without 
regard  to  the  rights  of  the  purchaser.  The  seller  should 
give  reasonable  notice  to  the  purchaser,  that  the  unpaid 
installment  must  be  paid,  or  otherwise  the  contract  will  be 
rescinded  and  canceled  and  all  prior  payments  forfeited. 
If,  after  receiving  this  notice,  the  purchaser  still  fails  to 
pay  the  installment,  the  vendor  may  cancel  the  contract, 
retain  the  money  already  paid,  and  regain  the  possession 
of  the  property.  If  the  purchaser  is  in  possession  of  the 
property,  and  refuses  to  give  it  up,  the  vendor  may  bring 
a  suit  for  ejectment,  and  the  courts  will  put  him  into 
possession. 

The  vendor  is  not  compelled  to  cancel  the  contract,  how- 
ever. For  he  may,  on  the  contrary,  sue  the  purchaser  for 
the  amount  of  each  installment,  as  default  is  made  in  its 
payment,  and  get  a  judgment  against  him.  The  effect  of 
this  will  be  to  enforce  and  maintain  the  contract  of  sale, 
and  the  judgment  against  the  purchaser  for  the  installments 
due  can  be  collected  out  of  his  property. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS,  127 

Where  there  is  an  absolute  agreement  on  the  part  of  the 
purchaser,  that,  if  payment  is  not  made  at  the  exact  time 
stipulated  therefor,  all  his  rights  thereunder  shall  be  for- 
feited, the  courts  of  California  will  enforce  the  contract 
as  it  finds  it.  The  hardship  of  any  case  will  not  justify  a 
court  in  setting  aside  the  solemn  agreement  of  the  parties. 

The  vendor  cannot  wait  until  all  the  installments  are  due, 
before  he  takes  action,  and  then  expect  the  courts  to  enforce 
the  contract  as  harshly  as  it  may  be  drawn  up  between  the 
parties.  If  he  waits  until  all  the  installments  are  due,  he 
must  tender  a  deed  of  the  land  to  the  purchaser  and  demand 
payment  of  the  installments  due,  if  he  wishes  to  enforce 
the  contract.  A  vendor  who  waits  until  the  last  installment 
of  the  purchase  price  is  due  cannot  sue  the  vendee  for  the 
unpaid  purchase  money  without  proof  of  performance,  or 
readiness  to  perform,  on  his  part;  and  the  tender  of  a 
deed  before  suit  is  not  alone  sufficient,  but  the  tender  must 
be  kept  good  during  the  court  proceedings ;  the  deed  must 
be  kept  in  readiness  to  deliver,  should  the  vendee  elect  to 
pay  up  and  receive  the  title. 

The  vendor  may  sue  to  compel  the  purchaser  to  carry 
out  the  contract,  and  the  courts  will  give  damages  for 
failure  to  do  so.  The  damages  allowed  will  be  the  differ- 
ence in  the  value  of  the  land  at  the  time  of  the  suit  and  the 
contract  price.  The  reason  of  this  rule  of  damages  is,  the 
property  may  have  increased  in  value,  and  thus  the  vendor 
may  not  be  damaged  at  all,  or  may  even  be  benefited,  when 
he  gets  the  property  back. 

Section  87r.— PURCHASER'S  REMEDY  IF  VENDOR 
FAILS  TO  FULFIL  CONTRACT.— It  may  happen  that 
the  vendor,  when  the  time  comes  when  he  should  make  a 
deed  conveying  the  title  to  the  purchaser,  is  unable  to  do 
so.  He  may  have  been  mistaken  as  to  his  own  title,  or 
some  other  circumstance  may  render  it  impossible  for  the 
vendor  to  meet  his  obligation,  so  that  he  cannot  convey 
a  title  to  the  land  to  the  purchaser.  In  such  case,  the  law 
is,  the  purchaser  may  sue  the  vendor,  and  recover  back 


128  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  money  he  has  paid,  with  interest  thereon.  If  the  pur- 
chaser has  been  in  possession,  and  has  made  improvements 
on  the  land,  the  value  of  the  improvements  may  also  be 
recovered,  if  the  vendor  misrepresented  the  facts  and 
thereby  induced  the  purchaser  to  buy. 

Section  87s.— FORM  OF  INSTALLMENT  AGREE- 
MENT FOR  SALE  OF  REAL  ESTATE.— The  following 
is  a  form  of  installment  contract  for  the  sale  of  real  estate : 

This  Agreement,  made  and  entered  into  on  the 

day  of ,  in  the  year  of  our  Lord  one  thousand 

nine  hundred  and  ,  between  

,  of  the  County  of 

,  State  of  California,  the  party 

of  the  first  part,  and , 

of  the  same  place,  the  party  of  the  second  part,  witnesseth : 

That  the  said  party  of  the  first  part,  in  consideration  of 
the  covenants  and  agreements  on  the  part  of  the  said  party 
of  the  second  part,  hereinafter  contained,  agrees  to  sell 
and  convey  unto  the  said  party  of  the  second  part,  and  said 
second  party  agrees  to  buy,  all  that  certain  lot  and  parcel 

of  land  situate  in  the  County  of 

State  of  California,  bounded  and  described  as  follows, 
to-wit : 

(Here  insert  description  of  land.) 

for  the  sum  of -. Dollars,  lawful  money 

of  the  United  States,  to  be  paid  in  the  manner  following, 

to-wit : Dollars  on  the  execution  of 

this  contract,  the  receipt  whereof  is  hereby  acknowledged, 

and  the  remainder  in  monthly  installments  of 

Dollars,  payable  on  the  first  day  of  each 

and  every  month  thereafter,  until  the  whole  of  said  pur- 
chase price  shall  have  been  paid,  together  with  interest  on 

deferred  payments  at  the  rate  of per  cent  per 

annum  from  date  until  paid. 

And  the  said  party  of  the  second  part  agrees  to  pay  all 
State,  City,  and  County  taxes,  or  assessments  of  whatso- 
ever nature,  which  are  or  may  become  due  on  the  premises 
above  described. 

In  the  event  of  a  failure  to  pay  the  said  installments,  or 
any  of  them,  by  the  party  of    the    second    part,  as  said 


BUSINESS    CONTRACTS   AND    LEGAL   OBLIGATIONS.  129 

installments  or  installment  shall  become  due,  the  said  party 
of  the  first  part  shall  be  released  from  all  obligation  in  law 
or  equity  to  convey  said  property,  and  the  said  party  of 
the  second  part  shall  forfeit  all  right  thereto,  and  all  pay- 
ments theretofore  made  by  said  party  of  the  second  part 
shall  be  thereby  forfeited  to  the  party  of  the  first  part. 

Time  is  the  essence  of  this  contract. 

And  the  said  party  of  the  first  part,  on  receiving  such 
payments,  at  the  time  and  in  the  manner  above  mentioned, 
agrees  to  execute  and  deliver  to  the  said  party  of  the  sec- 
ond part,  or  to  his  assigns,  a  good  and  sufficient  deed  con- 
veying the  title  to  said  property  herein  described,  free  and 
clear  of  incumbrances. 

And  it  is  understood  that  the  stipulations  aforesaid  are 
to  apply  to  and  bind  the  heirs,  executors,  administrators, 
and  assigns  of  the  respective  parties  hereto,  and  that  said 
party  of  the  second  part  is  to  be  let  into  and  have  immediate 
possession  of  said  premises. 

IN  WITNESS  WHEREOF,  the  parties  hereto  have 
hereunto  set  their  hands  and  seals  the  day  and  year  first 
above  written. 

(Seal.) 

(Seal.) 

(If  the  above  agreement  is  intended  to  be  recorded,  it 
must  be  acknowledged.) 

Employer  and  Employee 

Section  88.— CONTRACT  OF  EMPLOYMENT.— The 

contract  of  employment  is  one  by  which  a  person,  called 
an  employer,  engages  another,  called  an  employee,  to  do 
something  for  a  compensation.  In  such  a  contract  there 
is  always  either  an  express  agreement  or  an  implied  agree- 
ment to  pay  a  compensation  for  the  services  performed. 
If  the  agreement  between  the  employer  and  the  employee 
fixes  the  compensation,  the  law  will  not  interfere  with  it; 
but  if  there  is  a  contract  of  employment,  and  no  rate  of 
compensation  is  fixed  by  the  parties,  then  the  law  will 
imply  an  obligation  on  the  part  of  the  employer  to  pay 
what  the  services  performed  by  the  employee  were  reason- 
ably worth. 


130  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

Section  89.— OBLIGATIONS  OF  THE  EMPLOYER. 

— It  may  be  stated  generally  of  the  obligations  of  the  em- 
ployer, which  he  assumes  towards  the  employee,  by  the 
contract  or  relation  which  they  mutually  enter  into,  that 
by  the  law  of  California  the  employer  is  bound  to  provide 
a  safe  place  and  safe  appliances  and  machinery  for  the 
performance  by  the  employee  of  his  work;  that  the  em- 
ployer is  bound  to  inform  the  employee  of  anything  within 
his  own  knowledge  which  renders  the  place  or  appliances 
dangerous,  or  which  increases  the  ordinary  risks  of  the 
employment,  and  which  knowledge  is  not  equally  open  to 
the  observation  of  the  employee ;  that  the  employer  is  bound 
to  use  reasonable  care  and  diligence  in  the  selection  of 
competent  fellow-servants,  and  he  will  be  liable  to  an  em- 
ployee for  injuries  sustained  by  reason  of  his  negligence 
in  hiring  incompetent  employees  to  work  with  him;  that 
the  employer  must  keep  in  safe  condition  the  premises  in 
which  his  employee  works,  and  must  use  ordinary  care  in 
the  inspection  and  repair  of  such  premises,  and  in  the  inspec- 
tion and  repair  of  machinery  and  appliances  used  by  him. 
Also,  the  law  provides  that  the  employer  must  indemnify 
his  employee  for  all  that  he  necessarily  expends  or  loses 
in  direct  consequence  of  the  discharge  of  his  duties  or  in 
obedience  to  the  directions  of  the  employer,  provided  that 
an  employer  is  not  bound  to  indemnify  his  employee  for 
losses  suffered  by  the  latter  in  consequence  of  the  ordinary 
risks  of  the  business  in  which  he  is  employed.  And  an 
employer  must  in  all  cases  indemnify  his  employee  for  losses 
caused  by  the  employer's  want  of  ordinary  care,  provided 
that  the  employee's  own  negligence  must  not  contribute 
to  his  own  injury.  It  is  the  duty  of  the  employer  to  in- 
form his  employee  of  latent  defects,  or  extraordinary  dan- 
gers or  risks,  connected  with  the  service,  of  which  the 
employer  has  knowledge,  but  which  are  unknown  to  the 
employee.  If  the  employer  does  not  inform  the  employee 
of  such  defects  or  dangers,  he  will  be  liable  for  damages  if 
the  employee  is  injured.     (Decided  by  the  Supreme  Court 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  131 

of  California,  in  the  case  of  Bone  vs.  Ophir  Silver  Mining 
Co.,  which  decision  is  printed  in  Volume  86  of  the  Pacific 
Reporter,  page  685.) 


Section  89a.— LIABILITY  FOR  INJURY.— The  legis- 
lature of  1907  passed  a  new  law  affecting  the  liability  of 
employers  for  injury  to  employees.  It  provides  that  the 
employer  shall  be  liable  to  his  employee  for  personal  in- 
juries when  the  same  result  from  the  wrongful  act,  neglect 
or  default  of  any  agent  or  officer  of  such  employer,  superior 
to  the  employee  injured,  or  of  a  person  employed  by  such 
employer  having  the  right  to  control  or  direct  the  services 
of  such  employee  injured,  and  also  when  such  injury  results 
from  the  wrongful  act,  neglect  or  default  of  a  co-employee 
engaged  in  another  department  of  labor  from  that  of  the 
employee  injured,  or  employed  upon  a  machine,  railroad 
train,  switch-signal  point,  locomotive  engine,  or  other  ap- 
pliance than  that  upon  which  the  employee  injured  is  em- 
ployed, or  who  is  charged  with  dispatching  trains,  or  trans- 
mitting telegraphic  or  telephonic  orders  upon  any  rail- 
road, or  in  the  operation  of  any  mine,  factory,  machine 
shop,  or  other  industrial  establishment. 

Knowledge  by  an  employee  injured  of  the  defective  or 
unsafe  character  or  condition  of  any  machinery,  ways,  ap- 
pliances or  structures  of  such  employer  shall  not  be  a  bar 
to  recovery  for  any  injury  or  death  caused  thereby,  unless 
it  shall  also  appear  that  such  employee  fully  understood, 
comprehended,  and  appreciated  the  dangers  incident  to  the 
use  of  such  defective  machinery,  ways,  appliances  or  struc- 
tures, and  thereafter  consented  to  use  the  same,  or  con- 
tinued in  the  use  thereof. 

When  death,  whether  instantaneous  or  otherwise,  results 
from  an  injury  to  an  employee  received  as  aforesaid,  the 
personal  representative  of  such  employee  shall  have  a  right 
of  action  therefor  against  such  employer,  and  may  recover 
damages  in  respect  thereof,  for  and  on  behalf,  and  for  the 


132  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

benefit  of  the  widow,  children,  dependent  parents,  and  de- 
pendent brothers  and  sisters,  in  order  of  precedence  as 
herein  stated ;  but  no  more  than  one  action  shall  be  brought 
for  such  recovery. 

Any  contract  or  agreement,  express  or  implied,  made  by^ 
any  such  employee  to  waive  the  benefits  of  this  section,  or 
any  part  thereof,  shall  be  null  and  void,  and  this  section 
shall  not  be  construed  to  deprive  any  such  employee  or  his 
personal  representative  of  any  right  or  remedy  to  which 
he  is  now  entitled  under  the  laws  of  this  State. 

Act  of  the  Legislature,  in  eflFect  March  6,  1907. 

I 

Section  90.— OBLIGATIONS  OF  THE  EMPLOYEE.— 

The  law  imposes  upon  the  employee  the  obligation  of 
serving  his  employer  in  good  faith,  using  ordinary  care . 
and  diligence,  and  all  the  skill  which  he  possesses,  in  serv- 
ing his  employer's  interests  during  his  employment.  The 
employee  must  substantially  comply  with  all  the  reasonable 
directions  of  his  employer  concerning  the  service  on  which 
he  is  engaged,  except  where  it  is  impossible  or  unlawful 
for  him  to  do  so.  Everything  which  the  employee  acquires 
by  virtue  of  the  employment  belongs  to  the  employer, 
except  the  compensation  which  is  due  to  him  from  the 
employer.  An  employee  must,  on  demand,  render  to  his 
employer  just  accounts  of  all  his  transactions  in  the  course 
of  his  employment,  and  must  render  such  accounts  as  often 
as  may  be  reasonable.  An  employee  who  has  any  business 
to  transact  on  his  own  account,  similar  to  that  intrusted 
to  him  by  his  employer,  must  always  give  the  latter  the 
preference.  An  employee  who  is  guilty  of  gross  negligence 
in  the  performance  of  his  duties  is  liable  to  his  employer 
for  the  damage  thereby  caused  to  him;  and"  in  such  case 
the  employer  is  only  liable  to  the  employee  for  the  value 
of  such  services  as  are  properly  rendered. 

Civil  Code,  Sections  1978,  1981,  1984,  1985,  1986,  1988, 
1990. 


BUSINESS  CONTRACTS  AND  LEGAL   OBLIGATIONS.  133 

Section  91.— TERMINATION  OF  EMPLOYMENT.— 

The  employment  may  be  terminated  at  any  time  by  the 
mutual  agreement  of  the  parties.  The  employment  is  also 
terminated  by  the  expiration  of  the  term  contracted  for, 
or  by  the  extinction  of  its  subject,  or  by  the  death  of  the 
*  employee,  or  by  the  legal  incapacity  of  the  employee  to 
act,  as  in  the  case  where  the  employee  becomes  insane. 
An  employment  will  also  be  terminated  by  notice  of  the 
death  of  the  employer,  and  by  notice  of  his  legal  incapacity 
to  contract;  but  there  is  an  exception  to  this  rule  in  cases 
where  the  employee  has  an  interest  in  the  subject  of  the 
employment,  as  where,  by  the  terms  of  the  contract  of 
employment,  the  employee  is  to  have  a  part  ownership  of 
the  thing  upon  which  he  is  employed.  An  employment 
having  no  specified  term  may  be  ended  at  the  will  of  either 
party,  on  notice  to  the  other.  The  employer  may  discharge 
the  employee  for  any  wilful  breach  of  duty  by  him  in 
the  course  of  his  employment,  or  in  case  of  the  habitual 
neglect  of  his  duty  by  the  employee,  or  long-continued 
incapacity  to  do  his  work;  and  the  employee  may  quit  the 
service  of  his  employer,  even  though  he  has  contracted  for 
a  specified  term,  where  the  employer  is  guilty  of  any  wilful 
or  permanent  breach  of  his  obligations  to  the  employee, 
as  where  the  employer  fails  to  provide  a  safe  place  to  work 
or  safe  appliances  or  competent  fellow-servants,  or  in  any 
other  way  wilfully  fails  to  keep  the  obligations  which  the 
law  or  his  own  contract  enjoins  upon  him  for  the  benefit 
of  the  employee.  An  employee,  dismissed  by  his  employer 
for  good  cause,  is  not  entitled  to  any  compensation  for 
services  rendered  since  the  last  day  upon  which  a  payment 
became  due  to  him  under  the  contract.  An  employee  who 
quits  the  service  of  the  employer  for  good  cause  is  entitled 
to  a  proportionate  payment  of  the  compensation  which  he 
would  have  received  under  a  full  performance  of  the  con- 
tract, as  compared  with  the  portion  of  the  services  already 
performed  by  him. 

Civil  Code  Sections  1996,  1997,  1999,  2000,  2001,  2002, 
2003. 


134  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  91a.— SANITARY  CONDITION  OF  WORK- 
SHOPS.— Factories  and  workshops  must  be  kept  in  good 
sanitary  condition.  W'here  dust,  filaments,  or  injurious 
gases  are  produced  or  generated,  exhaust  fans  or  blowers 
must  be  used,  with  pipes  and  hoods  extending  to  each  ma- 
chine. 

Act  of  the  Legislature,  approved  February  22,  1909. 

Section  91b.— EMPLOYMENT  OF  CHILDREN.— No 

minor  under  the  age  of  sixteen  shall  be  employed  in  any 
mercantile  institution,  office,  laundry,  factory,  workshop, 
place  of  amusement,  restaurant,  hotel,  or  apartment  house, 
or  to  distribute  or  carry  messages  Or  merchandise  between 
the  hours  of  10  o'clock  in  the  evening  and  6  o'clock  in  the 
morning;  and  no  child  under  fourteen  years  of  age  shall 
be  employed  in  such  places  at  all. 

The  Judge  of  the  Juvenile  Court  can  issue  a  permit  to 
work  to  a  child  over  the  age  of  twelve  years,  upon  the 
sworn  statement  of  a  parent  showing  that  he  is  ill  and  the 
child's  labor  is  needed  for  support.  Children  over  the  age 
of  twelve  years  may  also  be  employed  during  the  regular 
school  vacations,  upon  a  written  permit  signed  by  the  school 
principal. 

Every  person,  firm,  or  corporation  employing  minors 
under  eighteen  years  of  age,  in  any  manufacturing  estab- 
lishment, shall  post,  and  keep  posted,  in  a  conspicuous 
place  in  every  room  where  such  help  is  employed,  a  written 
or  printed  notice  stating  the  number  of  hours  per  day  for 
each  day  of  the  week  required  of  such  persons. 

Act  of  the  Legislature,  approved  March  15,  1909. 

Section  91c.  —  EMPLOYMENT  AGENTS.  —  Employ- 
ment agents  must  procure  a  license  from  the  Commissioner 
of  the  Bureau  of  Labor  Statistics,  and  must  pay  therefor, 
in  cities  of  the  first  class,  first  and  one-half  class,  and  sec- 
ond class,  an  annual  fee  of  fifty  dollars ;  in  cities  of  the  third 
and  fourth  classes,  an  annual  fee  of  twenty-five  dollars ;  and 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  135 

in  all  other  cities  and  towns,  an  annual  fee  of  six  dollars. 
Branch  employment  agencies  must  each  have  a  separate 
license.  The  license  must  be  posted  in  a  conspicuous  place 
on  the  premises.  The  license  is  good  from  the  date  of  issu- 
ing to  the  31st  day  of  March  following. 

Act  of  the  Legislature,  approved  March  6,  1909  (in 
effect  on  and  after  April  1,  1909). 

Master  and  Servant 

Section  92.— WHO  IS  A  SERVANT.— There  is  a  kind 
of  employment  which  is  distinguished  under  the  head  of 
'Master  and  Servant,"  in  the  law  of  California,  as  in  the 
law  of  other  countries.  The  term  applies  particularly  to 
one  who  is  employed  to  render  personal  service  to  his 
employer,  otherwise  than  in  the  pursuit  of  an  independent 
calling,  and  who  in  such  service  remains  entirely  under 
the  control  and  direction  of  the  latter,  who  is  called  his 
master.  The  word  "servant"  is  not  confined  by  our  law 
to  persons  who  are  in  domestic  service,  but  it  includes  all 
who  are  entirely  under  the  direction  and  control  of  the 
employer,  with  no  independent  choice  or  business  of  their 
own,  in  rendering  of  personal  services  of  any  kind. 

Section  93.— TERM  OF  HIRING.— A  servant  is  pre- 
sumed to  have  been  hired  for  such  length  of  time  as  the 
parties  adopt  for  the  estimation  of  wages.  A  hiring  at  a 
yearly  rate  is  presumed  to  be  for  one  year;  a  hiring  at  a 
daily  rate,  for  one  day ;  a  hiring  by  piece-work,  for  no 
specified  term.  Custom  in  a  particular  employment  or  a 
particular  place  may  change  the  case,  but  if  there  is  no 
agreement  or  custom  as  to  the  term  of  service,  the  time 
of  payment,  or  rate  or  value  of  wages,  a  servant  is  pre- 
sumed to  be  hired  by  the  month,  at  a  monthly  rate  of 
reasonable  wages,  to  be  paid  when  the  services  are  per- 
formed. Where  after  the  expiration  of  an  agreement  re- 
specting wages  and  term  of  service,  the  parties  continue 
the  relation  of  master  and  servant,  they  are  presumed  to 


136  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

have  renewed  the  agreement  for  the  same  wages  and  term. 
The  Bank  of  Suisun  employed  a  bookkeeper,  for  the  year 
1898,  at  an  annual  salary  of  $1,200,  payable  monthly,  and  he 
continued  in  that  employment  during  the  first  two  months 
of  1899.  He  was  then  discharged,  and  he  sued  the  bank  for 
$1,000,  the  balance  of  his  salary  for  the  year.  There  was 
a  judgment  of  the  Superior  Court  for  the  amount  against 
the  bank,  and  the  Supreme  Court  decided  the  case 
against  the  bank,  saying:  "The  presumption  arises  that 
the  employment  was  renewed  for  the  same  wages  and  term 
as  for  the  previous  term."  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  Gabriel  vs.  Bank  of  Suisun, 
which  decision  is  printed  in  Volume  28,  California  Decisions, 
page  720.) 

Civil  Code,  Section  94. 

Section  94.— WHEN  SERVANT  MAY  BE  DIS- 
CHARGED.— The  law  is  that  a  master  may  discharge  any 
servant,  other  than  an  apprentice,  whether  engaged  for  a 
fixed  term  or  not,  if  he  is  guilty  of  misconduct  in  the  course 
of  his  service,  or  of  gross  immorality,  though  not  connected 
with  his  service ;  or  if,  being  employed  about  the  person 
of  the  master  or  in  a  confidential  position,  the  master  dis- 
covers that  the  servant  has  been  guilty  of  misconduct  before 
or  after  the  commencement  of  his  services,  of  such  a  nature 
that  the  master,  had  he  known  or  contemplated  the  facts, 
would  not  have  employed  him. 
Civil  Code,  Section  2015. 

Principal  and  Agent 

Section  95.— DEFINITION  OF  AGENCY.— An  agent 
is  one  who  represents  another,  called  the  principal,  in 
dealings  with  third  persons.  And  as  a  great  part  of  the 
business  of  all  communities  is  transacted  through  the  me- 
dium of  agents,  it  is  proposed  in  following  sections  to  give 
the  law  of  California  applying  to  the  relative  rights  and 
obligations  of  Principal  and  Agent  in  this  State. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  137 

Section  96.— KINDS  OF  AGENCY.— There  are  two 
kinds  of  agents,  special  agents  and  general  agents.  An 
agent  for  a  particular  transaction  is  called  a  special  agent, 
because  he  is  appointed  with  special  power  to  do  that  par- 
ticular thing.  A  general  agent,  on  the  other  hand,  has  a 
general  authority  conferred  upon  him  to  transact  business 
of  his  principal,  which  includes  more  than  one  particular 
act.  An  agency,  when  it  exists  at  all,  is  either  actual  or 
ostensible.  An  agency  is  actual  when  the  agent  is  really 
employed  by  the  principal.  An  agency  is  ostensible  when 
the  principal  intentionally  or  by  want  of  ordinary  care 
causes  a  third  person  to  believe  another,  who  is  not  really 
employed  by  him,  to  be  his  agent. 

Civil  Code,  Sections  2230,  2297,  2298,  2299. 

Section  97.— AUTHORITY  OF  AGENT.— An  agent 
has  authority  to  do  whatever  his  principal  might  do  in  the 
business  for  which  he  is  employed.  He  has  authority  to 
do  everything  necessary  or  proper  and  usual,  in  the  ordinary 
course  of  business,  for  effecting  the  purpose  of  his  agency. 
But  he  has  only  such  authority  as  the  principal  confers 
upon  him,  and  he  will  be  limited  in  his  authority  to  the 
particular  business  for  which  he  is  employed.  Whatever 
he  does  within  the  scope  of  his  employment,  necessary  or 
proper  and  usual,  in  the  ordinary  course  of  business,  to 
effect  the  purpose  of  his  agency,  will  be  binding  upon  his 
principal.  His  declarations  as  to  the  subject  of  his  agency, 
within  the  scope  of  his  employment,  will  bind  his  principal ; 
as  where  an  agent  employed  to  sell  goods  makes  at  the  time 
a  representation  as  to  their  quantity  or  quality. 
Civil  Code.  Sections  2315.  2319.  2320. 

Section  98.— WHAT  INCLUDED  IN  AUTHORITY 
TO  SELL  PERSONAL  PROPERTY.— An  authority  to 
sell  personal  property  includes  authority  to  warrant  the 
title  of  the  principal,  and  the  quality  and  quantity  of  the 
property. 

Civil  Code,  Section  2323. 


138  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

Section  99.— WHAT  INCLUDED  IN  AUTHORITY 
TO  SELL  REAL  ESTATE.— An  agent's  authority  to  sell 
and  conve}'  real  property  includes  authority  to  give  the 
usual  covenants  of  warranty. 

Civil  Code,  Section  2324. 

Section  100.— AUTHORITY  OF  AGENT  TO  RE- 
CEIVE PRICE  OF  PROPERTY.— A  general  agent  to 
sell,  who  is  intrusted  by  the  principal  with  the  possession 
of  the  thing  sold,  has  authority  to  receive  the  price.  A 
special  agent  to  sell  has  authority  to  receive  the  price  on 
delivery  of  the  thing  sold,  but  not  afterward.  But  neither 
a  general  nor  a  special  agent  to  sell  has  any  authority  to 
receive  anything  but  money  in  payment  of  the  price  of  the 
thing  sold.  Therefore,  if  the  agent  sells  property  of  his 
principal,  and  accepts  part  cash  and  part  in  something 
else,  the  principal  will  not  be  bound. 
Civil  Code,  Sections  2325,  2326. 

Section  101.— AGENT'S  POWER  TO  DISOBEY  IN- 
STRUCTIONS.—An  agent  has  power  to  disobey  his  in- 
structions in  dealing  with  the  subject  of  the  agency,  in 
cases  where  it  is  clearly  for  the  interest  of  his  principal 
that  he  should  do  so,  when  there  is  not  time  to  communi- 
cate with  the  principal.  The  general  rule  is,  that  an  agent 
must  follow  and  adhere  to  the  instructions  and  authority 
he  has  received  from  his  principal,  but  under  some  cir- 
cumstances he  may  depart  from  his  instructions,  and  the 
law  will  justify  him,  and  his  principal  will  be  bound.  So 
where,  from  the  necessities  of  the  case,  without  the  agent's 
fault  or  neglect,  some  sudden  and  unexpected  emergency 
or  extraordinary  or  supervening  necessity  arises,  or  some 
unforeseen  event  happens,  which  will  not  admit  of  delay 
for  consultation  or  communication  with  the  principal,  if 
the  agent,  exercising  prudence  and  sound  discretion,  in 
good  faith  adopts  the  course  which  seems  best  to  him, 
under  all  the  circumstances  as  they  exist,  he  will  be  justi- 
fied, and  his  acts  will  bind  his  principal,  though  subsequent 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  139 

events  may  demonstrate  that  some  other  course  would  have 
been  the  better. 

•  Section  102.— AGENT  CANNOT  HAVE  AUTHOR- 
ITY TO  DEFRAUD  PRINCIPAL.— An  agent  can  never 
have  authority  to  do  any  act  which  is  a  fraud  upon  the 
principal,  and  is  known  or  suspected  by  the  person  with 
whom  he  deals  to  be  fraudulent.  The  agent  must  act  in 
good  faith  with  his  principal,  and  if  he  enters  into  collu- 
sion with  another  to  obtain  an  advantage  over  his  prin- 
cipal, or  to  obtain  the  property  of  the  principal  for  less 
than  it  is  worth,  the  courts  of  this  State  will  be  ready  to 
give  the  principal  relief  against  both,  by  restoring  to  him 
the  property  of  which  he  has  been  defrauded,  or,  if  this 
cannot  be  done,  by  giving  him  damages  as  compensation. 
Many  illustrations  might  be  given.  Where  an  agent  in- 
vests money  belonging  to  his  principal  for  the  purchase  of 
an  interest  in  a  syndicate,  of  which  the  agent  is  a  member, 
and  in  which  he  holds  an  interest,  and  which  is  indebted 
in  a  large  amount,  and,  to  induce  the  investment,  leads  the 
principal  to  believe  that  he  is  not  a  member  of  the  syn- 
dicate, or  interested  therein,  and  represents  that  the  prin- 
cipal will  not  have  any  calls  to  pay  upon  becoming  a  mem- 
ber thereof,  the  law  imputes  fraud  on  the  part  of  the  agent, 
and  the  principal  may  avoid  the  transaction  and  recover 
from  the  agent  the  amount  so  invested.  So,  it  is  the  law 
of  this  State,  that  an  agent  must  not  unite  his  personal 
and  his  representative  characters  in  the  same  transaction ; 
for  the  law  will  not  permit  him  to  be  exposed  to  the  temp- 
tation, or  brought  into  a  situation  where  his  own  personal 
interests  will  conflict  with  the  interests  of  his  principal. 
In  dealing  without  the  intervention  of  his  principal,  if  an 
agent  for  the  purpose  of  selling  property  of  the  principal 
purchases  it  himself,  or  an  agent  for  the  purpose  of  buying 
property  for  the  principal  buys  it  from  himself,  either 
directly  or  through  the  instrumentality  of  a  third  person, 
the  sale  or  purchase  is  voidable,  and  will  always  be  set 
aside  at  the  option  of  the  principal. 
Civil  Code,  Section  2306. 


140  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Section  103.— AGENT'S     ACTUAL     AUTHORITY.— 

The  actual  authority  of  an  agent  is  such  as  a  principal  in- 
tentionally confers  upon  him,  or  intentionally  or  by  want 
of  ordinary  care  allows  the  agent  to  believe  himself  to  be 
possessed  of.  An  agent's  authority  is  actual  when  there  is 
a  contract  of  employment  existing  between  him  and  the 
principal.  The  principal  may  have  given  the  agent  instruc- 
tions to  act  in  a  certain  way;  or  a  course  of  dealings  or 
other  circumstances  between  them  may  have  been  such  as 
to  lead  the  agent  to  believe  that  his  authority  from  the 
principal  extended  to  the  things  done ;  or  the  principal  may 
have  stood  by  and  without  objection  witnessed  the  conduct 
of  the  agent,  and  thus  made  the  agent  believe  that  his 
authority  from  the  principal  was  sufficient  to  warrant  the 
acts  done  by  him ;  and  in  all  such  cases  the  agent  will  be 
deemed  to  have  had  authority  actually  given  him  by  the 
principal. 

Civil  Code,  Sections  2299,  2316. 

Section  104.— AGENT'S  OSTENSIBLE  AUTHORITY. 

— The  ostensible  authority  of  an  agent  is  such  as  the  prin- 
cipal, intentionally  or  by  want  of  ordinary  care,  causes  or 
allows  a  third  person  to  believe  the  agent  possesses.  There 
are  two  essential  features  of  an  ostensible  authority;  the 
third  party  must  believe  that  the  agent  has  authority;  and 
such  belief  must  be  generated  in  his  mind  by  some  act  or 
neglect  of  the  person  whom  he  seeks  to  hold  liable  as 
principal.  A  belief  founded  on  the  agent's  statement  is 
not  sufficient;  for  a  party  has  no  right  to  take  the  agent's 
word  for  the  existence  of  his  authority.  But  where  the 
agent  shows  letters  or  telegrams,  which  are  worded  so  as 
to  lead  a  reasonable  man  to  believe  that  he  has  received 
authority  from  the  principal  to  act  for  him  in  a  certain  way ; 
or  where  the  principal  has  been  in  the  habit  of  receiving 
money,  for  shipments  of  products  or  goods,  through  the 
same  agent,  in  similar  transactions ;  or  where  the  principal 
has  been  in  the  habit  of  honoring  drafts  signed  by  the  same 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  141 

person  as  his  "agent";  or  where  similar  transactions  have 
occurred  in  which  the  acts  of  the  alleged  agent  were  author- 
ized or  ratified;  in  all  such  cases,  if  the  third  party  knows 
of  the  former  transactions,  and  has  received  no  notice  that 
the  principal  will  not  be  responsible,  he  will  be  justified 
in  believing  that  the  agent  has  authority,  and  the  principal 
will  be  bound,  even  though  the  person  for  whom  the  agent 
assumes  to  act  may  not  have  intended  to  hold  him  out  as 
such  agent.  On  the  other  hand,  a  principal  is  bound  by 
acts  of  his  agent,  under  merely  ostensible  authority,  to 
those  persons  only  who  have  in  good  faith,  and  without 
ordinary  negligence,  incurred  a  liability  or  parted  with 
value  upon  the  faith  of  it.  Therefore,  if  there  is  anything 
in  the  circumstances  of  a  transaction,  or  in  the  conduct  of 
one  who  represents  himself  as  agent,  which  ought  to 
excite  the  suspicions  or  stimulate  the  inquiry  of  a  reason- 
able man,  and  the  means  of  inquiry  are  open  to  him,  and  he 
neglects  to  make  such  inquiry  or  investigation  as  a  reason- 
able man  under  the  circumstances  should  be  expected  to 
make,  the  principal  will  not  be  liable  for  the  acts  of  one 
who  has  no  actual  authority  as  agent  to  act  for  him.  The 
statements  of  the  agent  himself  do  not  prove  the  agency. 
And  one  who  deals  with  another,  upon  his  mere  statement 
that  he  is  the  agent  of  a  third  person,  takes  upon  himself 
the  risk  of  being  able  to  show,  if  a  dispute  occurs,  that 
such  agency  really  existed.  He  cannot  hold  the  third  per- 
son as  a  principal,  under  such  circumstances,  unless  he  can 
produce  proof  of  the  agency  aside  from  the  agent's  own 
statements.  (Decided  by  the  California  Court  of  Appeals, 
in  the  case  of  Apler  vs.  Tormey,  which  decision  is  printed 
in  Volume  85  of  the  Pacific  Reporter,  page  661.) 

Civil  Code,  Sections  2300,  2334. 

Section  105.— RATIFICATION  OF  AGENT'S  ACTS.— 

A  person  may  ratify  the  acts  of  another,  done  for  him  as 
his  pretended  agent,  and  so  make  himself  liable,  though  he 
had  given  the  agent  no  authority  before  the  act  was  done. 


142  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

This  ratification  may  be  in  many  ways.  It  may  be  directly, 
by  notice  to  the  party  with  whom  the  agent  has  dealt;  or 
it  may  be  by  receiving  and  retaining  the  fruits  of  the 
agent's  acts ;  or  it  may  be  by  silence  and  failure  to  object 
after  being  fully  informed  of  the  facts,  for  if  one  is  fully  in- 
formed of  a  contract  made  by  another  in  his  name,  and 
by  virtue  of  pretended  authority  from  him,  and  remains 
silent  and  does  not  repudiate  the  contract  within  a  reason- 
able time,  he  is  presumed  to  give  his  consent  and  acquies- 
cence to  the  contract.  But  a  ratification  can  be  made 
only  in  the  manner  that  would  have  been  necessary  to  con- 
fer an  original  authority  for  the  act  ratified ;  so  where  the 
contract  made  by  the  agent  was  one  which  the  law  re- 
quires to  be  in  writing,  the  ratification  of  the  agent's  act 
must  also  be  in'  writing. 

Civil  Code,  Section  2310 

Section  106.— HOW  AGENCY  IS  CREATED.— An 
agency  may  be  created  by  authority  given  before  the  act 
done,  and  its  creation  will  be  presumed  from  a  subsequent 
ratification.  The  authority  conferred  upon  an  agent  may 
be  verbal,  and  it  will  be  sufficient  for  any  purpose,  except 
that  an  authority  to  enter  into  a  contract  required  by  law 
to  be  in  writing  can  only  be  given  by  an  instrument  in 
writing. 

Civil  Code,  Sections  2307,  2309. 

Section  107.— MUTUAL  OBLIGATIONS  OF  PRINCI- 
PAL AND  THIRD  PERSONS.— An  agent  represents  his 
principal  for  all  purposes  within  the  scope  of  his  actual  or 
ostensible  authority,  and  all  the  rights  and  liabilities  which 
would  accrue  to  the  agent  from  transactions  within  such 
limit,  if  they  had  been  entered  into  on  his  own  account, 
accrue  to  the  principal.  And  the  principal  is  liable,  even 
if  the  agent  exceeds  his  instructions,  where  the  party  with 
whom  he  deals  is  not  aware  of  it.  In  either  case,  the  ques- 
tion of  the  authority  of  the  agent  must  depend,  so  far  as 
it  involves  the  rights  of  innocent  third  persons  who  have 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  143 

relied  thereon,  upon  the  character  bestowed,  and  not  uy>on 
the  instruction  given.  Or,  in  other  words,  the  principal  is 
bound  to  third  persons  who  have  relied  thereon  in  good 
faith,  and  in  ignorance  of  any  limitations  or  restrictions, 
by  the  apparent  authority  he  has  given  to  the  agent,  and 
not  by  the  actual  or  express  authority,  where  that  differs 
from  the  apparent ;  and  this,  too,  whether  the  agency  be  a 
general  or  special  one. 

As  against  a  principal,  both  principal  and  agent  are 
deemed  to  have  notice  of  whatever  either  has  notice  of, 
and  ought  in  good  faith  and  the  exercise  of  ordinary  care 
and  diligence  to  communicate  to  the  other.  Notice  to  the 
agent  of  a  corporation  is  notice  to  the  corporation  itself. 

An  instrument  wathin  the  scope  of  his  authority,  by 
which  an  agent  intends  to  bind  his  principal,  does  bind  him, 
if  such  intent  is  plainly  inferable  from  the  instrument 
itself. 

A  principal  is  responsible  to  third  persons  for  the  negli- 
gence of  his  agent  in  the  transaction  of  the  business  of  the 
agency,  including  wrongful  acts  committed  by  such  agent 
as  a  part  of  the  transaction  of  such  business,  and  for  the 
agent's  wilful  omission  to  fulfil  the  obligations  of  the  prin- 
cipal. 

Sometimes  a  person  deals  with  a  man  without  knowing 
or  having  reason  to  believe  that  he  is  not  acting  for  him- 
self, but  is  really  only  the  agent  for  another.  In  such 
cases,  where  the  fact  is  afterwards  disclosed  that  another 
is  the  principal,  and  the  principal  makes  a  claim  arising 
out  of  the  contract,  the  party  who  dealt  with  the  agent 
may  set  off  against  the  principal  all  claims  which  he  might 
have  set  off  against  the  agent  before  receiving  notice  that 
he  was  an  agent. 

An  undisclosed  principal  will  be  liable  when  he  becomes 
known,  upon  a  contract  made  by  the  agent  in  his  own 
name.  Where  a  party  sells  goods  to  one  who  afterwards 
turns  out  to  have  been  the  agent  of  another,  and  the  prin- 
cipal receives  the  benefit  of  the  transactions,  the  principal 
will  be  held  responsible  for  the  goods  furnished  the  agent. 


144  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

But  the  statute  of  this  State  provides,  that  if  exclusive 
credit  is  given  to  an  agent  by  the  person  dealing  with  him, 
his  principal  is  exonerated  by  payment  made  to  the  agent 
in  good  faith,  before  receiving  notice  of  the  creditor's 
election   to   hold   the   principal   responsible. 

Civil   Code,   Sections   2330,   2331,   2332,   2333,   2334, 
2335,  2336,  2337,  2338. 

Section  108. —  OBLIGATIONS  OF  AGENTS  TO 
THIRD  PERSONS. — One  who  assumes  to  act  as  an  agent 
thereby  warrants  to  all  who  deal  with  him  in  that  capaci^y, 
that  he  has  the  authority  which  he  assumes.  And  if  one 
acts  as  an  agent,  without  authority,  the  party  injured  may 
sue  him  for  the  breach  of  the  warranty  and  recover  his 
losses. 

If,  with  the  agent's  consent,  credit  is  given  to  him  per- 
sonally in  a  transaction,  he  will  be  responsible  as  a  prin- 
cipal to  third  persons.  He  will  also  be  personally  responsi- 
ble, whenever  he  enters  into  a  contract  in  the  name  of  his 
principal,  without  believing,  in  good  faith,  that  he  has 
authority  to  do  so.  He  will  also  be  responsible  when  his 
acts  are  wrongful  in  their  nature.  If  an  agent  receives 
anything  for  the  benefit  of  his  principal,  to  the  possession 
of  which  another  person  is  entitled,  he  must,  on  demand, 
surrender  it  to  such  person,  or  so  much  of  it  as  he  has 
under  his  control  at  the  time  of  the  demand,  on  being 
indemnified  for  any  advances  which  he  has  made  to  his 
principal,  in  good  faith,  on  account  of  the  same;  and  he  is 
responsible  therefor,  if,  after  notice  from  the  owner,  he 
delivers  it  to  his  principal. 

Civil  Code.  Sections  2342,  2343,  2344. 

Section   109.  — AGENT'S     DELEGATION     OF     HIS 

POWER. — An  agent,  unless  specially  forbidden  by  his 
principal  to  do  so,  can  delegate  his  power  to  another  person 
in  any  of  the  following  cases,  and  in  no  others:  (1)  When 
the  act  to  be  done  is  purely  mechanical ;   (2)   when  it  is 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  145 

such  as  the  agent  cannot  himself,  and  the  sub-agent  can, 
lawfully  perform  ;  (3)  when  it  is  the  usage  of  the  place  to 
delegate  such  powers;  or,  (4)  when  such  delegation  is 
specially  authorized  by  the  principal. 

A  sub-agent  represents  the  principal  in  like  manner  with, 
the  original  agent;  and  the  original  agent  is  not  responsible 
to  third  persons  for  the  acts  of  the  sub-agent.  Of  course, 
if  the  agent  should  without  lawful  authority  appoint  a  sub- 
agent,  he  would  be  responsible  to  third  persons  for  such 
sub-agent's  acts. 

Civil  Code,  Sections  2349,  2351. 

Section     110.— TERMINATION      OF     AGENCY.— An 

agency  is  terminated,  as  to  every  person  having  notice,  by 
the  expiration  of  its  term.  It  is  also  terminated  by  the 
extinction  of  its  subject,  as  where  an  agent  to  sell  certain 
goods  disposes  of  all  of  them,  or  where  the  subject  of  the 
agency  is  lost  or  destroyed  so  that  nothing  more  can  be 
done  about  it.  It  is  also  terminated  by  the  death  of  the 
agent.  It  is  also  terminated  by  the  agent's  renunciation 
of  the  agency.  It  is  also  terminated  by  the  incapacity  oi 
the  agent  to  act  as  such,  as  where  the  agent  becomes 
insane,  or  from  some  other  cause  it  becomes  impossible 
for  the  agent  to  perform  his  duties.  It  is  also  terminated 
when  revoked  by  the  principal,  or  by  the  principal's  death, 
or  by  the  principal's  incapacity  to  act;  but  there  is  an 
exception  to  the  rule  that  an  agency  is  thus  terminated 
because  of  the  revocation  by  death  or  incapacity  of  the 
principal,  in  cases  where  the  agent  has  acquired  from  his 
principal  an  interest  in  the  thing  which  is  the  subject  of 
the  agency;  for  such  an  interest  may  survive  all  of  these 
events,  and  be  binding  upon  the  principal's  heirs,  adminis- 
trators, and  executors,  so  as  to  continue  the  agency  in 
existence.  The  interest  which  will  keep  alive  the  agency, 
under  such  conditions,  must  not  be  a  mere  lien  for  com- 
pensation or  commissions,  but  must  be  an  interest  in  the 
property  or  other  subject  of  the  agency. 
Civil  Code,  Sections  2355,  2356. 


146  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

Wholesaler's  Agents 

Section  111.— TRAVELING  AGENTS.— In  modern  bus- 
iness enterprise  the  employment  of  traveling  agents  by- 
wholesale  houses  is  adopted  as  one  of  the  necessary  means 
of  obtaining  or  keeping  trade.  The  same  ordinary  rules 
which  apply  to  the  agents  of  other  men  apply  to  the  agents 
employed  by  wholesalers,  except  when  varied  by  custom 
or  usage  in  a  particular  business  or  locality. 

Section  112.— SALE  BY  SAMPLE.— The  agent  of  a 
wholesaler  who  carries  samples  "with  him,  when  he  exhibits 
the  samples  to  the  customer,  and  solicits  his  order  for  the 
goods,  warrants  that  the  bulk  will  be  equal  to  that  of  the 
sample.  This  is  absolutely  necessary  as  a  rule  of  law,  as 
well  as  the  custom  among  merchants. 

Section   113.— PURCHASER'S   RIGHT  TO   RETURN 

GOODS. — The  purchaser  of  goods  sold  by  sample  has  a 
right  to  make  reasonable  inspection  of  the  goods,  and  if 
the  bulk  is  not  equal  to  the  sample,  he  may  repudiate  the 
sale  and  return  the  goods.  But  his  inspection  and  objec- 
tion must  be  reasonable.  If  he  keeps  the  goods,  unpacked 
and  unopened,  for  a  long  time  after  he  receives  them,  his 
inspection  will  not  be  reasonable;  and  if,  after  inspection, 
he  uses  a  part  of  the  goods  himself,  or  disposes  of  a  part 
to  others,  or  delays  in  sending  them  back  to  the  whole- 
saler, his  right  to  avoid  liability  for  the  purchase  price  will 
be  lost.  He  must  act  promptly  in  inspecting  the  goods, 
and  must  with  equal  promptness  return  them,  if  he  does 
not  wish  to  be  held  for  them. 

Section  114.  — COLLECTIONS  BY  TRAVELING 
AGENT. — A  commercial  traveler  who  makes  collections 
for  his  house  cannot,  without  special  authority  from  the 
house,  accept  anything  but  money  from  the  debtor. 

Section  115.— GIVING  CREDIT.— A  commercial  trav- 
eler may  sell  goods  on  credit,  where  that  is  the  usage  or 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  147 

custom  of  the  place  or  business;  and  when  a  customer  buys 
on  credit  from  a  wholesaler's  agent,  in  accordance  with 
a  usage  between  them  of  long  standing,  and  without  notice 
of  any  change  in  the  wholesaler's  terms,  the  latter  will 
be  bound,  even  if  he  has  instructed  his  agent  to  give  no 
more  credit. 

Section  116.— DECLARATIONS  OF  WHOLESAL- 
ER'S AGENT. — When  a  commercial  traveler  approaches 
a  customer,  with  or  without  .samples  of  his  principal's 
goods,  he  stands  in  the  place  of  the  principal  and  acts  for 
and  in  his  behalf.  As  the  principal's  own  declarations 
would  bind  him,  if  he  were  present,  so  the  agent's  declara- 
tions within  the  scope  of  his  authority,  made  at  the  time 
of  the  sale,  and  relating  to  the  goods,  will  be  binding  upon 
the  principal.  So,  whatever  the  agent  of  a  wholesaler 
who  is  sent  out  to  sell  the  goods  of  his  principal  states, 
as  to  the  quantity,  or  quality,  or  condition,  or  price,  or 
the  time  and  manner  of  shipment,  or  any  other  fact  which 
is  material  to  or  an  inducement  for  the  sale,  it  will  bind 
the  principal  as  though  he  had  made  the  representations 
in  person. 

Section  117.  — NOTICE  TO  WHOLESALER'S 
AGENT. — Notice  of  a  fact  given  to  the  agent  is  notice  to 
the  wholesaler.  Therefore,  if  the  purchaser  gives  notice 
to  the  agent  of  any  fact  with  respect  to  the  contract  or  the 
goods,  it  is  notice  to  the  wholesaler  himself,  and  he  will 
be  bound  by  it. 

Section  118.— FAILURE  TO  SHIP  GOODS.— When  a 

commercial  agent  solicits  and  receives  an  order  for  goods, 
and  neglects  to  send  the  order  to  his  house,  or  the  principal 
refuses  to  honor  the  order,  after  receiving  it,  the  wholesaler 
will  be  liable  to  the  customer  for  all  damages  sustained 
by  him,  if  the  goods  were  ordered  in  good  faith. 

Section  119.  — NOTICE  BY  WHOLESALER  OF 
TERMINATION  OF  AGENCY.— A  wholesaler  must  give 
notice  to  his  customers  of  the  termination  of  an  agent's 


148  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

authority,  or  he  will  be  bound  by  the  agent's  contracts  with 
persons  from  whom  he  has  formerly  solicited  orders,  even 
if  made  after  the  agent's  authority  has  actually  ceased. 
Where  a  wholesaler  dismisses  an  agent  from  his  employ, 
and  revokes  his  authority  to  sell  or  buy,  he  must  give 
notice  to  third  parties  with  whom  the  agent  has  dealings ; 
and  if  he  does  not  give  notice  to  third  parties  of  his  revo- 
cation of  the  agent's  authority,  or  unless  he  does  what  he 
t:an  to  make  the  revocation  as  notorious  and  generally 
known  to  the  world  as  was  the  fact  of  the  agency,  he  will 
be  bound  by  the  further  dealings  of  the  agent  with  persons 
who  have  not  received  notice  of  the  agent's  dismissal. 
As  to  the  method  of  giving  notice  that  an  agent's  authority 
has  been  revoked,  or  as  to  the  character  of  notice  required, 
the  law  does  not  prescribe  any  particular  form  of  notice 
or  method  of  giving  it.  Much  will  depend,  in  this  matter, 
upon  the  prevailing  custom  or  usage.  Sometimes  the 
notice  is  given  by  publishing  in  a  newspaper,  but  more 
often  by  circular  letter  mailed  to  each  of  the  wholesaler's 
customers.  The  latter  method  is  to  be  preferred ;  for  the 
wholesaler's  books  will  usually  show  the  names  and  ad- 
dresses of  all  persons  with  whom  the  agent  has  had  deal- 
ings, and  a  notice  by  mail  may  more  surely  reach  the 
person  intended  to  be  notified  of  the  revocation  of  an 
agent's  authority.  But  whatever  may  be  the  method  pur- 
sued, it  must  not  be  forgotten  that  actual  notice  of  an 
agent's  dismissal  is  necessary  to  protect  his  former  prin- 
cipal from  being  bound  by  the  agent's  further  dealing  with 
persons  with  whom  he  formerly  dealt. 

Section  120.— WHOLESALER'S  REPUDIATION  OF 
AGENCY. — Circumstances  occur  where  the  wholesaler 
will  dispute  the  agency  altogether,  and  seek  to  repudiate 
the  acts  of  one  who  has  assumed  to  represent  him  in  a 
transaction.  In  such  cases,  if  the  wholesaler  does  any- 
thing himself  to  ratify  the  act  of  the  assumed  agent,  or 
accepts  the  result  of  his  services,  or  acknowledges  in  any 
way  his  capacity  as  agent  for  himself,  he  will  be  bound. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  149 

and  his  effort  to  repudiate  the  transaction  will  be  of  no 
avail.  A  repudiation  of  the  act  of  one  who  assumes  to 
act  as  agent,  and  whose  agency  is  disputed,  must  be  made 
promptly,  as  soon  as  the  wholesaler  learns  of  the  pretended 
agency,  and  must  be  decisive  and  unequivocal.  There  was 
a  case  in  Colusa  County,  which  was  passed  upon  by  the 
Supreme  Court  of  California  in  1896,  which  illustrates 
very  well  the  conduct  which  will  bind  a  wholesaler,  and 
what  will  not  be  considered  a  repudiation  of  an  assumed 
agent's  authority.  A  man  named  Willis,  who  represented 
himself  as  the  agent  of  J.  K.  Armsby  Co.,  San  Francisco, 
made  a  contract  with  J.  H.  Pope,  of  Colusa  County,  for  the 
purchase  of  a  lot  of  green  fruit.  The  contract  was  in  writ- 
ing, and  was  signed,  "J.  K.  Armsby  Company.  By  Frank 
W.  Willis,  Agent."  Subsequently,  and  before  the  delivery 
of  any  fruit  under  the  contract,  Pope  wrote  to  the  J.  K. 
Armsby  Co.  this  letter:  "Colusa,  Cal,  May  25,  1894. 
J.  K.  Armsby  Co.,  San  Francisco — Gentlemen :  I  have 
sold  my  green  fruit  to  you,  and  have  a  contract  signed  to 
that  effect,  signed,  'J.  K.  Armsby  Company,'  by  Frank 
Willis,  as  agent.  Now,  what  I  want  to  know,  is  F.  W. 
Willis  your  agent  for  buying  green  fruit,  and  is  the  con- 
tract correct?  Your  immediate  answer  and  oblige  Yours 
truly,  J.  H  Pope.''  On  the  next  day  Pope  received  from 
the  general  manager  of  the  Company  this  letter :  "San 
Francisco,  May  26,  1894.  John  H.  Pope,  Esq.,  Colusa, 
Cal. — Dear  Sir:  We  have  yours  of  the  25th.  Mr.  Willis 
bought  some  apricots  on  our  advice,  but  we  are  not  aware 
he  bought  them  in  our  name.  We  will  handle  them,  how- 
ever, and  think  there  is  no  question"  on  the  money  part  of 
the  transaction.  The  writer  expects  to  visit  your  section 
within  the  next  week  or  two,  and  will  arrange  the  matter 
satisfactorily  with  you  then.  Yours  truly,  J.  K.  Armsby 
Co.  Freeman."  Afterwards  a  dispute  arose,  and  the  J. 
K.  Armsby  Company  denied  that  Willis  was  their  agent 
for  buying  the  fruit,  and  claimed  to  have  repudiated  his 
agency.     But  the  Supreme  Court  reviewed  the  facts,  and 


150  BUSINESS   LAWS   FOB   BUSINESS   MEN. 

said  that  the  letter  from  the  Company  was  not  frank,  and 
did  not  answer  the  question  put  by  Pope,  whether  Willis 
was  the  Company's  agent  in  the  premises,  by  saying,  in 
terms,  whether  he  was  or  was  not  such  agent;  that  the 
language  used  in  the  letter,  and  the  assurances  conveyed 
by  it,  authorized  but  one  inference,  that  the  contract  was 
all  right  and  the  Company  would  see  it  carried  out.  And 
the  Supreme  Court  further  said,  that  if  the  Company  in- 
tended to  repudiate  the  transaction,  it  was  its  duty  to  do 
so  explicitly,  and  in  such  terms  as  to  leave  no  room  for 
doubt ;  and  that  Pope  had  a  right  to  infer  from  the  lan- 
guage of  the  letter  that  the  contract  made  by  Willis,  in- 
stead of  being  repudiated,  was  in  fact  ratified  by  the  J.  K. 
Armsby  Company ;  and  that  the  Company  was  positively 
and  plainly  informed  by  Pope's  letter  that  he  had  a  written 
contract  signed  in  its  name,  and  it  was  clearly  the  duty  of 
the  Company,  if  it  did  not  know  the  terms  of  the  contract, 
to  inform  itself,  before  writing  as  it  did,  if  it  did  not  wish 
to  be  bound  by  the  contract.  It  would  have  been  a  very 
easy  thing  to  have  asked  Pope  to  send  a  copy  of  the  con- 
tract, before  replying  to  his  letter;  and  not  to  have  taken 
this  simple  precaution  was  negligence  on  the  Company's 
part,  and  precluded  it  from  denying  the  effect  of  its  assur- 
ances to  Pope,  which  induced  the  latter  to  proceed  and 
deliver  his  fruit  under  what  he  had  a  right  to  suppose  was 
a  valid  contract.  The  case  just  referred  to,  like  a  great 
many  others  of  like  character,  exemplifies  the  rule  that 
an  attempted  repudiation  of  agency,  or  the  contract  of  an 
agent  made  in  the  name  of  the  principal,  must  be  unequivo- 
cal and  plain  and  clear,  and  must  leave  no  room  for  a  con- 
trary inference  on  the  part  of  the  person  with  whom  the 
agent  deals.  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Pope  vs.  Armsby  Co.,  reported  in  Volume 
111,  California  Reports,  page  159.) 

Manufacturer's  Agents 

Section  121.— MANUFACTURER'S  AGENT  TO  BUY 
OR  SELL. — The  law  which  applies  generally  to  agents  is 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  151 

also  applicable  to  agents  for  manufacturers,  whether  such 
agents  have  the  authority  to  buy  raw  material  or  to  sell 
the  finished  product  to  the  retailer.  The  agent  for  the 
manufacturer  has  such  authority  as  his  principal  gives  him, 
or  such  as  may  be  reasonably  inferred  from  a  course  of 
dealings  with  customers  of  which  the  manufacturer  has 
knowledge  and  retains  the  benefits. 

Section  122.— AGENT'S  AUTHORITY  TO  BORROW 

MONEY. — Where  a  manufacturer  establishes  an  agency 
in  a  city  other  than  the  place  where  the  factory  or  the  main 
office  is  located,  the  question  sometimes  arises  as  to  what 
conditions  or  circumstances,  if  any,  will  justify  the  agent 
in  borrowing  money  on  his  principal's  account.  The  au- 
thority of  an  agent  to  borrow  money  for  his  principal 
may  be  expressly  given,  or  it  may  be  impliedly  conferred 
upon  him  as  an  incident  to  the  business  which  he  under- 
takes to  transact  for  his  principal.  When  the  power  to 
borrow  money  is  expressly  given  to  an  agent,  the  existence 
and  extent  of  the  power  are,  of  course,  to  be  determined 
by  a  construction  of  the  instrument  by  which  it  is  given. 
Where  a  general  power  to  borrow  money  is  expressly 
given,  such  power  includes  authority  to  give  the  lender 
the  ordinary  securities  for  the  sum  borrowed,  such  as 
bonds,  notes,  or  collaterals.  The  power  of  an  agent  to 
borrow  money  on  his  principal's  account  may  be  implied, 
when  the  carrying  on  of  the  business  intrusted  to  him 
absolutely  requires  the  exercise  of  such  power.  An  agent 
is  presumed  to  have  power  to  do  whatever  is  necessary 
to  effect  the  purposes  of  his  agency.  The  necessity  for 
borrowing  money  must,  however,  be  shown,  before  the 
power  to  borrow  can  be  inferred  from  the  original  employ- 
ment of  the  agent.  To  justify  this  inference,  the  borrow- 
ing must  be  practically  indispensable,  and  it  is  not  sufficient 
that  it  was  convenient,  or  advantageous,  or  more  effectual 
for  the  transaction  of  the  business  provided  for.  Nor  is 
a    party    dealing    with    an    agent    entitled    to    assume    the 


152  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

existence  of  any  extraordinary  state  of  facts,  in  order  to  bring 
the  act  of  the  agent  within  the  scope  of  his  apparent  author- 
ity. Where  it  is  absolutely  necessary,  in  order  to  carry 
on  the  business  with  which  the  agent  is  intrusted,  that  he 
should  borrow  money  on  the  credit  of  his  principal,  the 
authority  to  borrow  will  be  implied.  But  a  power  given 
to  an  agent  to  draw  or  indorse  checks,  for  and  in  the  name 
of  his  principal,  gives  him  no  authority  to  overdraw  his 
principal's  account  at  the  bank.  Where  the  act  of  an  agent, 
in  borrowing  money  for  his  principal,  was  without  original 
authority,  the  principal's  ratification  of  the  act  cannot  be 
inferred  from  the  mere  fact  that  the  money  borrowed  went 
into  the  business  of  the  principal  or  was  beneficial  or 
advantageous  to  him.  But  where  an  agent  without  original 
authority  borrows  money  on  behalf  of  his  principal,  and 
uses  it  in  a  manner  advantageous  to  the  principal,  the 
ratification  of  the  agent's  act  may  be  inferred  from  the 
silence  of  the  principal  after  knowledge  of  all  the  facts,  or 
from  his  promise  to  repay  the  money  so  borrowed. 

Section  123.— AGENT  SELLING  GOODS  OUT  OF 
MANUFACTURE.— An  agent  authorized  to  sell  new- 
pattern  goods,  to  be  manufactured,  in  addition  to  those 
that  the  principal  has  already  manufactured,  or  is  willing 
to  manufacture,  has  no  authority  to  sell  old-pattern  goods, 
which  have  ceased  to  be  manufactured,  and  could  not  be 
manufactured  except  at  a  loss.  The  very  sending  of  an 
agent  out  to  sell  carries  with  it  the  idea  that  he  is  expected 
by  the  manufacturer  to  sell  to  his  advantage;  and  this 
being  so,  it  cannot  be  said  that  because  he  is  expressly 
authorized  to  sell  manufactured  goods,  he  is  also  author- 
ized to  sell  those  that  have  ceased  to  be  manufactured,  and 
could  not  be  except  at  a  loss.  An  agent  who  has  authority 
to  sell  new-pattern  goods,  to  be  manufactured,  cannot  be 
said  to  have  authority  to  sell  what  is  not  being  manufac- 
tured and  will  not  be  by  his  principal,  because  to  manu- 
facture it  would  result  in  a  loss,  which  is  not  the  prevalent 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  153 

idea  in  any  business.  A  reasonable  man  would  not  believe 
that  a  manufacturer  would  carry  out  any  such  contract, 
or  that  he  intended  to  authorize  his  agent  to  make  it. 

Section  124.— SELLING  GOODS  FOR  ONE  YEAR 
MADE  IN  ANOTHER.— The  mere  fact  that  one  acts  as 
agent  of  a  manufacturer  in  one  year,  in  the  sale  of  goods 
manufactured  for  sale  for  that  year,  does  not  make  him  an 
ostensible  agent  for  the  sale  of  the  goods  for  the  next  year, 
unless  such  goods  are  continued  to  be  manufactured  or  are 
in  stock,  and  the  principal  wishes  to  sell  them. 

Section    125.— LIMITATION     OF     AUTHORITY.— A 

letter  from  a  manufacturing  firm  to  a  customer,  to  the  effect 
that  for  the  next  year  they  had  certain  new  patterns  of 
goods,  which  they  would  be  ready  to  submit  to  the  inspec- 
tion of  the  customer  at  the  end  of  the  month,  and  that  "our 
Mr.  W.  will  call  on  you  early  in  January,  and  talk  to  you 
about  handling  the  line  for  next  year,"  only  authorized  the 
agent  to  sell  the  new  patterns  of  goods  which  were  in  the 
process  of  manufacture,  or  were  offered  to  be  manufac- 
tured, and  the  customer  could  not  recover  damages  for  the 
failure  of  the  manufacturer  to  deliver  old  patterns  of  goods 
which  the  latter  had  ceased  to  manufacture. 

Section  126.— SALE  OF  PROPERTY  WHEN  MANU- 
FACTURED.— An  agent  authorized  to  sell  the  property 
of  his  principal  when  manufactured,  has  no  authority  to 
sell  before  it  is  manufactured. 

Commission  Merchants 

Section  127.— SELLING  PROPERTY  ON  COMMIS- 
SION.— There  is  a  common  kind  of  agency  exercised  by 
commission  merchants,  who  receive  the  property  of  others 
to  sell  on  commission.  But  commission  merchants,  who 
usually  have  possession  of  the  property  itself,  and  receive, 
not  a  salary,  but    a    part    of    the    selling  price    as    their 


154  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

compensation,  and  usually  receive  few  if  any  instructions 
from  the  consignor  of  property  to  be  sold  on  commission, 
are  to  be  considered  from  a  peculiar  point  of  view  in  many 
of  their  business  relations. 

Section  128.— INSURANCE  OF  CONSIGNED  PROP- 
ERTY.— A  commission  merchant,  unless  he  has  received 
contrary  instructions,  has  authority  to  insure  property  con- 
signed to  him  uninsured. 

Civil  Code,  Section  2368. 

Section  129.— AUTHORITY  TO  SELL  ON  CREDIT. 

— Unless  specially  restricted  to  sales  for  cash,  a  commis- 
sion merchant  has  authority  to  sell  on  credit  any  property 
intrusted  to  him  for  sale;  but  such  authority  does  not  ex- 
tend to  such  things  as  it  is  customary  to  sell  for  cash. 
Therefore,  even  if  he  has  not  received  any  instructions  to 
the  contrary,  a  commission  merchant  will  not  have  author- 
ity to  sell  on  credit  any  commodity  consigned  to  him  for 
sale  which  it  is  the  custom  at  the  place  where  he  does 
business  to  sell  for  cash. 

Civil  Code,  Section  2368. 

Section    130.— PLEDGE     OF     CONSIGNED     PROP- 
ERTY.— A  commission  merchant  has  no  power  to  pledge 
or  mortgage  property  consigned  to  him,  and  cannot   trade 
the  cohsigned  property  for  other  property. 
Civil  Code,  Section  2368. 

Section  131.— AUTHORITY  OF  PARTNER  OR 
SERVANT. — The  partner  or  servant  of  a  commission  mer- 
chant may  have  the  same  authority  to  deal  with  the  con- 
signed property  as  he  has,  but  he  cannot  delegate  his 
authority  to  any  person  in  an  independent  employment. 
Civil  Code,  Section  2368. 

Section  132.— INSTRUCTIONS  FROM  CONSIGNOR. 

— If  a  consignment  of  property  is  received  by  a  commission 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  155 

merchant,  and  the  consignor  at  the  same  time  sends 
certain  instructions  for  him  to  follow,  regarding  any  mat- 
ter connected  with  the  sale,  it  is  the  duty  of  the  merchant 
to  follow  such  instructions  if  possible,  notwithstanding 
any  advances  he  may  have  made  to  his  principal  upon  the 
property  consigned  to  him.  But  if  he  has  an  opportunity 
to  sell  at  the  market  price,  and  the  consignor  forbids  him 
to  do  so,  he  need  not  follow  such  instructions,  unless  his 
advances  are  repaid  him  ;  and  if  his  advances  are  not  repaid 
him,  he  may  proceed  to  sell  for  his  own  reimbursement, 
after  giving  to  the  consignor  reasonable  notice  of  his  inten- 
tion to  do  so,  and  of  the  time  and  place  of  sale. 
Civil  Code,  Section  2027. 

Section    133.— CANNOT    EXTEND    CREDIT.— When 

property  is  sold  by  a  commission  merchant  on  credit,  the 
sale  must  be  made  on  such  credit  as  is  usual,  but  he  has 
no  power  to  extend  the  credit  agreed  upon. 
Civil  Code,  Section  2028. 

Section   134.— GUARANTY   OF   CERTAIN   PRICE.— 

Where  the  commission  merchant  guarantees  that  the  goods 
shall  yield  to  the  consignor  a  fixed  price,  he  cannot  by  sell- 
ing for  less,  or  by  deducting  his  commission,  avoid  his 
liability  to  make  his  returns  to  the  consignor  amount  to 
the  price  agreed  upon.  The  value  of  the  goods,  as  it  turns 
out  to  be,  is  not  material.  He  has  fixed  his  own  liability, 
and  his  guaranty  of  a  certain  price,  and  his  liability  to  the 
consignor  for  so  much,  becomes  absolute  whenever  he 
makes  a  sale,  whether  for  cash  or  upon  credit. 

Section  135.— INSTRUCTIONS  TO  "SELL  ON  AR- 
RIVAL."— Where  a  consignment  of  property  is  made  to 
a  commission  merchant,  with  instructions  to  "sell  on  ar- 
rival," the  merchant  is  bound  to  follow  the  instructions 
and  sell  for  the  price  the  property  will  command,  and  if  he 
does  not  do  so,  but  holds  the  property  and  neglects  to  sell 


J  56  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

on  arrival,  he  will  be  liable  for  any  losses  sustained  by  the 
consignor  occasioned  by  a  fall  in  price.  He  cannot  excuse 
himself  by  saying  that  the  market  was  dull,  for  he  had 
received  his  instructions,  and  it  was  his  duty  to  sell,  if  the 
property  might  have  been  disposed  of  even  at  a  reduced 
price.  It  was  his  duty  to  sell  on  arrival,  no  matter  at  what 
loss. 

Section  136.— SPECIAL  PROPERTY  IN  CONSIGN- 
MENTS.— A  commission  merchant  to  whom  goods  have 
been  consigned  for  sale,  has  a  special  property  in  the  goods, 
by  virtue  of  his  position  with  relation  to  them.  For  many, 
if  not  for  most  purposes,  he  is  treated  as  the  owner  of  the 
goods.  He  has  possession ;  he  may  sell  and  make  ship- 
ments ;  he  may  collect  the  purchase  price ;  and,  in  fact,  he 
may  deal  with  the  property  as  though  it  were  his  own,  in 
the  absence  of  explicit  instructions  limiting  his  authority. 
And  it  follows,  necessarily,  that  any  limitation  upon  his 
general  authority  must  be  brought  to  the  notice  of  those 
with  whom  he  deals,  or'  his  principal  will  be  bound,  even 
though  he  should  go  outside  his  instructions. 

Section  137.— IN  WHOSE  NAME  INSURANCE  MAY 
BE  PUT. — Insurance  on  property,  consigned  to  a  commis- 
sion merchant  for  sale,  may  be  for  the  benefit  and  in  the 
names  of  both  merchant  and  consignor.  The  merchant  is 
not  bound  to  insure,  unless  he  has  received  orders  to  do 
so ;  but  he  may  insure,  in  his  own  name,  or  in  the  name  and 
for  the  benefit  of  his  principal. 

Section  138.— RESPONSIBILITY    OF    PURCHASER. 

— It  is  the  duty  of  a  commission  merchant  who  sells  on 
credit  to  make  strict  inquiry  as  to  the  responsibility  of  the 
purchaser;  and  if  he  neglects  to  do  so,  and  a  loss  occurs, 
he  will  be  liable  for  it  to  his  principal. 

Section  139.— RIGHT  TO  COMMISSIONS.— If  a  com- 
mission  merchant   properly   performs   his   duties,   he   will 


BUSINESS  CONTRACTS  AND  LEGALi  OBLIGATIONS.  157 

always  be  entitled  to  his  commission  in  such  sum  as  has 
been  agreed  upon  between  himself  and  principal;  and  if 
there  has  been  no  agreement  as  to  the  amount  of  the  com- 
mission, then  for  a  reasonable  amount,  which  may  depend 
upon  usage  or  custom.  But  if  the  merchant  be  guilty  of 
gross  misconduct,  or  if  he  perform  his  duties  in  such  a 
negligent  manner  as  to  prevent  any  benefit  to  the  principal, 
he  will  not  be  entitled  to  receive  his  commission.  If  ex- 
penses are  occasioned  by  his  own  negligence,  he  cannot 
recover  them;  and  he  will  not  be  entitled  to  the  difference, 
when  through  his  own  negligence  the  proceeds  of  the  sale 
are  not  equal  to  the  expenses. 

Section   140.— MAY   SELL   IN   HIS   OWN    NAME.— 

Having  a  special  property  in  goods  consigned  to  his  care, 
a  commission  merchant  may  sell  in  his  own  name;  and 
when  the  purchaser  pays  him,  the  former  is  discharged 
from  all  liability  to  the  real  owner  of  the  goods.  When- 
ever, the  commission  merchant  sells  in  his  own  name,  he 
may  sue  the  purchaser  in  his  own  name  for  the  price. 

Section  141.— TAKING  PROMISSORY  NOTE  IN 
PAYMENT. — When  it  is  proper  for  a  commission  mer- 
chant to  sell  on  credit,  and  he  takes  the  promissory  note 
of  the  purchaser  in  payment,  payable  to  himself,  he  takes 
it  in  trust  for  his  principal,  and  subject  to  his  order. 

Section  142.— LIEN  OF  COMMISSION  MERCHANT. 

— Having  possession  of  the  goods,  and  a  special  property 
in  them,  the  commission  merchant  has  a  lien  upon  them 
and  their  proceeds,  and  the  securities  received  upon  their 
sale,  for  his  expenses  and  commissions,  for  his  advances  to 
his  principal,  and  usually  for  the  balance  of  his  general 
account  with  his  principal. 

Section  143.— AUTHORITY  AS    GENERAL  AGENT. 

: — Where  general  authority  is  given  to  a  commission  mer- 
chant to  buy  and  sell  for  the  principal,  he  is  considered  as 


158  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

a  general  agent,  and  his  acts  will  be  binding  on  his  prin- 
cipal, even  where  he  has  violated  his  private  instructions. 

Section  144.— CARE  TO  BE  TAKEN  OF  GOODS 
CONSIGNED. — A  commission  merchant  is  bound  to  keep 
the  goods  intrusted  to  him  with  the  same  care  as  a  pru- 
dent man  would  bestow  upon  them,  if  they  were  his  own. 
He  must  use  ordinary  diligence  in  the  care  and  preserva- 
tion of  the  property  while  it  is  in  his  hands ;  and  for  any 
loss  occasioned  by  his  neglect  of  his  duty  in  this  respect  he 
will  be  personally  liable  to  his  principal. 

Section  145.— MUST  NOT  MIX  GOODS  WITH  AN- 
OTHER'S.— A  commission  merchant  has  no  right  to  mix 
the  goods  received  from  one  person  with  the  goods  of 
another. 

Section   146.— DUTY   TO   RENDER   ACCOUNTS.— A 

commission  merchant  is  bound  to  give  the  unbiased  use  of 
his  own  discretion  and  judgment  to  his  principal,  and  he 
must  keep  and  render  to  his  principal  true  accounts  of  his 
transactions,  and  he  must  keep  the  principal  informed  of 
all  facts  material  to  his  interests ;  and  if  losses  occur 
through  neglect  of  these  duties,  he  will  become  personally 
responsible  to  the  principal. 

The  Legislature  of  1909  passed  a  law  providing  that 
"every  commission  merchant,  broker,  agent,  factor,  or  con- 
signee, who  shall  wilfully  and  corruptly  make,  or  cause  to 
be  made  to  the  principal  or  consignor,  a  false  statement 
as  to  the  price  obtained  for  any  property  consigned  or  en- 
trusted for  sale,  or  as  to  the  quality  or  quantity  of  any  prop- 
erty so  consigned  or  entrusted,  or  as  to  any  expenditures 
made  in  connection  therewith,  shall  be  deemed  guilty  of  a 
misdemeanor,  and  on  conviction  thereof,  shall  be  punished 
by  fine  not  exceeding  five  hundred  dollars  and  not  less  than 
two  hundred  dollars,  or  by  imprisonment  in  the  county  jail 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  159.. 

not  exceeding  six  months  and  not  less  than  ten  days,  or  by 
both  such  fine  and  imprisonment." 

Act  of  the  Legislature,  approved  March  20,  1909. 

Another  law  was  passed  relating  to  the  duty  of  a  com- 
mission merchant  to  render  an  account  to  the  consignor, 
as  follows : 

"It  is  hereby  made  the  duty  of  every  commission  mer- 
chant, broker,  factor,  or  consignee,  to  whom  any  property 
is  consigned  or  entrusted  for  sale,  to  make,  when  account- 
ing therefor  or  subsequently,  upon  the  written  demand  of 
his  principal  or  consignor,  a  true  written  statement  setting 
forth  the  name  and  address  of  the  person  or  persons  to 
whom  a  sale  of  the  said  property,  or  any  portion  thereof, 
was  made,  the  quantity  so  sold  to  each  purchaser,  and  the 
respective  prices  obtained  therefor;  provided,  however,  that 
unless  separate  written  demand  shall  be  made  as  to  each 
consignment  or  shipment  regarding  which  said  statement 
is  desired,  prior  to  sale,  it  shall  be  sulificient  to  set  forth  in 
said  statement  only  so  many  of  said  matters  above  enu- 
merated as  said  commission  merchant,  broker,  factor,  or 
consignee  may  be  able  to  obtain  from  the  books  of  account 
kept  by  him ;  and  that  said  statement  shall  not  be  required 
in  case  of  cash  sales  where  the  amount  of  the  transaction 
is  less  than  fifty  dollars.  Any  person  violating  the  pro- 
visions of  this  section  is  guilty  of  a  misdemeanor." 

Act  of  the  Legislature,  approved  April  22,  1909. 

Real  Estate  Agents 

Section  147.— EMPLOYMENT  MUST  BE  IN  WRIT- 
ING.— The  employment  of  a  real  estate  agent,  giving  him 
authority  to  sell  land  for  another,  is  required  by  the  law 
of  this  State  to  be  in  writing.  The  contract  or  some  mem- 
orandum of  it  must  be  in  writing.  The  contract  or  memo- 
randum need  not  state  that  the  agent  is  to  receive  a  com- 
mission for  his  service,  but  it  must  show  in  writing  that  the 
agent  was  employed. 

Civil  Code,  Section  1624. 


160  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

Section    148.— VERBAL     CONTRACT     INVALID.— 

A  verbal  contract  for  the  sale  of  real  property,  made  by 
an  agent  who  has  no  written  authority  from  another,  is 
invalid.  And  if  the  agent  without  authority  in  writing 
allows  an  intending  purchaser  to  take  possession  of  the 
property,  such  possession  will  only  be  held  at  the  will  of 
the  owner,  who  can  bring  an  action  for  unlawful  detainer 
against  the  party  in  possession.  Verbal  authority  given 
by  one  to  another,  to  contract  with  reference  to  his  land, 
is  in  law  no  authority.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Nason  vs.  Lingle,  which  decision 
is  printed  in  Volume  27,  California  Decisions,  page  970.) 

Section  149.— WHEN  LETTER  NOT  SUFFICIENT.— 

A  letter  from  the  owner  of  real  estate  is  not  sufficient  to 
enable  the  agent  to  recover  a  commission,  unless  it  is  clearly 
seen  that  an  employment  was  intended,  from  the  language 
used  in  the  letter  itself.  A  real  estate  agent  in  Oakland 
received  a  letter  which  read  as  follows :  "Walter  E.  Lo- 
gan :  Sir — If  you  can  purchase  N.  W.  corner  of  13th  and 
Franklin  streets,  75x100,  for  $42,000,  I  think  we  would  be 
ready  to  purchase  same  by  Monday  next.  J.  C.  McMullen." 
Logan  sued  for  a  commission,  producing  the  above  letter 
as  evidence  of  his  employment  in  writing.  The  District 
Court  of  Appeal  decided  that  the  letter  was  not  a  sufficient 
memorandum  of  employment,  under  the  law.  The  Court 
says  that  it  does  not  purport  to  be  an  employment  of  the 
plaintiff  as  a  broker  or  agent  for  the  purchase  of  the  real 
estate,  but  is  rather  to  be  construed  as  merely  a  proposi- 
tion to  him  to  ascertain  whether  it  could  be  purchased  at 
the  designated  price.  But  whatever  construction  is  to  be 
given  to  its  terms,  inasmuch  as  the  plaintiff  did  not  pur- 
chase the  property,  or  obtain  from  the  owner  an  agreement 
for  its  sale  which  could  be  enforced  by  the  defendant,  the 
latter  did  not  become  liable  to  him  for  any  service  as  bro- 
ker or  agent  in  the  matter.  It  was  his  duty  to  procure  from 
the  owners  and  deliver  to  the  defendant  a  valid  contract 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  161 

of  sale  which  could  be  enforced  by  the  defendant;  or,  if  he 
could  obtain  from  the  owners  a  verbal  agreement  to  make 
the  sale,  he  should  have  brought  the  owners  and  the  de- 
fendant together,  thus  giving  the  latter  an  opportunity  to 
secure  a  written  contract.  The  letter  alone  was  not  suf- 
ficient to  show  an  employment  of  the  agent,  or  to  give  him 
any  right  to  commissions.  (Decided  by  the  District  Court 
of  Appeal,  First  District,  in  the  case  of  Logan  vs.  McMullen, 
which  decision  is  printed  in  Volume  87  of  the  Pacific  Re- 
porter, page  285.) 

Section  150.— DESCRIPTION  OF  LAND.— A  contract 
to  employ  a  real  estate  agent  need  not  describe  the  lands 
specifically,  if  the  terms  of  the  employment  can  be  made 
definite  without  it.  But  where  it  was  evidently  intended 
to  limit  the  employment  to  certain  property,  it  must  appear 
that  the  property  sold  is  within  the  description.  Thus,  if 
a  contract  should  describe  the  property  generally,  as  "all 
my  land  in  Mendocino  County,  California,"  it  would  be  a 
valid  contract  of  employment,  as  capable  of  being  made 
certain,  and  applying  generally  to  all  the  lands  of  the  prin- 
cipal. But  if  enough  appeared  on  the  face  of  the  contract 
to  show  that  it  was  the  intention  that  the  agent  should  sell 
a  particular  tract  or  lot  of  land,  the  agent,  in  order  to  make 
a  valid  sale,  would  have  to  confine  himself  strictly  to  the 
land  particularly  described. 

Section  151.— RIGHT  OF  AGENT  TO  COMMIS- 
SIONS WHEN  PROPERTY  WITHDRAWN  FROM 
SALE. — Where  the  contract  of  employment  provides  that 
if  the  owner  shall  before  the  expiration  of  the  contract 
withdraw  the  property  from  sale  the  agent  will  be  entitled 
to  his  commissions,  the  agent  is  entitled  to  recover  his 
commissions  as  a  debt  due  from  the  owner,  upon  his  with- 
drawing the  property  from  sale  within  the  time  named  in 
the  contract.  The  owner  who  withdraws  the  property  from 
sale  will  be  liable  for  the  commissions,  even  though  the 


l62  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

agent  has  not  found  a  purchaser  for  the  property.  For  by 
his  contract  he  gives  the  agent  the  opportunity  to  earn  the 
commissions  within  a  certain  time ;  and  if,  during  the  term, 
he  withdraws  the  property  from  sale,  he  thus  deprives  the 
agent  of  the  benefit  of  the  unexpired  time,  and  may  pre- 
vent his  opportunity  for  making  a  sale. 

Section  152.— WHEN  CONTRACT  FULFILLED 
AND  COMMISSION  EARNED.— A  real  estate  agent  is 
never  entitled  to  commissions  for  unsuccessful  efforts. 
When  he  undertakes  to  find  a  purchaser,  the  risk  of  fail- 
ure is  wholly  his.  The  reward  comes  only  with  his  suc- 
cess. That  is  the  plain  contract  and  contemplation  of  the 
parties.  The  agent  may  devote  his  time  and  labor  and 
expend  his  money  with  ever  so  much  devotion  to  the  in- 
terest of  his  employer,  and  yet  if  he  fails,  if,  without  effect- 
ing an  agreement  or  accomplishing  a  bargain,  he  abandons 
the  effort,  or  if  his  authority  is  fairly  and  in  good  faith  ter- 
minated, he  gains  no  right  to  commissions.  He  loses  the 
effort  which  was  staked  upon  success,  and  in  such  event 
it  matters  not  that  after  his  failure  and  the  termination  of 
his  agency,  what  he  has  done  proves  of  use  and  benefit  to 
the  principal.  But,  on  the  other  hand,  if  an  agent  author- 
ized to  negotiate  a  sale  produces,  within  the  time  limited 
by  his  contract,  a  purchaser,  ready,  willing,  and  able  to 
purchase  upon  the  terms  stated  in  the  contract,  his  service 
is  completed  and  he  is  entitled  to  his  commissions.  He  is 
entitled  to  his  commissions,  notwithstanding  the  owner 
backs  out,  and  refuses  to  sell  to  the  purchaser  produced. 

Section  153.— WHAT  IS  SUFFICIENT  AUTHORITY 
FROM  CORPORATION.— Where  an  individual  gives 
authority  to  a  real  estate  agent  to  sell  his  land,  any  writing, 
in  any  form,  whether  memorandum,  agreement,  or  letter, 
or  telegram,  which  expresses  on  its  face  the  employment 
of  the  agent  to  sell,  is  a  sufficient  authorization.  But  in 
the  case  of  a  corporation  the    law  is    entirely    different. 


BUSINESS   CONTItACTS  AND  LEGAL   OBLIGATIONS.  163 

A  corporation  can  only  act  by  and  through  its  officers, 
and  a  writing,  though  signed  by  its  President,  Cashier, 
or  Secretary,  or  all  three  together,  stating  that  a  real  estate 
agent  had  been  employed  to  sell  lands  owned  by  the  cor- 
poration, would  not  give  any  authority  to  the  agent  what- 
ever. Corporations  act  by  their  officers,  and  the  officers 
must  transact  their  business  in  the  manner  provided  by 
law,  and  in  no  other  way.  Therefore,  a  corporation  which 
has  land  to  sell,  and  wishes  to  employ  an  agent  to  make 
the  sale,  can  only  act  upon  the  matter  through  its  Board 
of  Directors,  when  duly  assembled,  by  a  resolution  duly 
passed  and  recorded.  There  must  be  a  quorum  of  the 
Directors  present,  and  a  majority  of  the  Board  must  vote 
in  favor  of  the  resolution  to  employ  the  agent,  and  the 
"aye"  and  "no"  vote  must  be  entered  in  the  minutes.  The 
agent  should  then  be  furnished  with  a  copy  of  the  resolu- 
tion, which  will  be  a  sufficient  indication  of  his  authority. 
When  the  By-Laws  of  the  corporation  provide  that  notice 
to  Directors  of  meetings  of  the  Board  be  given  in  a  cer- 
tain manner,  notice  must  be  giveit  strictly  in  accordance 
with  the  By-Laws,  or  the  resolution  passed  will  not  be 
valid.  It  will  make  no  difference  that  all  the  Directors, 
without  the  formality  of  a  meeting,  sign  their  names  to  a 
written  authorization  to  the  agent.  Such  a  writing  would 
be  worthless.  Under  it  the  agent  would  have  no  legal 
authority  to  deal  with  the  land.  Under  it,  he  could  neither 
make  a  valid  contract  of  sale,  nor  collect  any  commissions 
from  the  corporation  for  his  services.  The  Directors,  the 
President,  the  Secretary,  the  Cashier,  the  stockholders,  no 
one  of  these  has  power,  by  virtue  of  his  office  or  invest- 
ment, to  employ  an  agent  to  buy  or  sell  for  the  corporation, 
nor  have  all  together  the  power  which  neither  has  sepa- 
rately. The  powers  of  a  corporation  must  be  exercised, 
and  its  property  controlled,  by  its  Board  of  Directors ;  the 
decision  of  the  majority  of  the  Directors,  made  when  duly 
assembled,  being  valid  as  a  corporate  act.  The  Board 
must  be  duly  assembled,  and  their  transactions  should   be 


164  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

recorded.  The  Directors  when  not  acting  as  a  Board  have 
not  the  necessary  power  to  employ  an  agent.  The  absence 
of  a  resolution  of  the  Board  renders  any  writing  purporting 
to  employ  the  agent,  though  signed  by  the  Directors  or 
other  officers,  illegal  and  invalid. 

Civil  Code,  Sections  305,  308,  377. 

Section  154.— RATIFICATION  OF  UNAUTHORIZED 
EMPLOYMENT  BY  CORPORATION.— Where  an  agent 
acts  for  a  corporation,  without  having  received  proper 
authorization  by  resolution  of  the  Board  of  Directors,  the 
corporation  may  yet  ratify  the  act  of  the  agent  in  making 
a  sale ;  provided,  the  ratification  must  be  in  the  same  form 
and  manner  as  the  original  authorization  should  have  been, 
that  is,  it  must  be  by  a  resolution  of  the  Board  lawfully 
adopted. 

Section  155.— OPTION  TO  AGENT  TO  SELL  FOR 
COMMISSION  ABOVE  A  FIXED  PRICE.— The  owner 
of  land  may  lawfully  make  a  contract  authorizing  real 
estate  agents  to  sell  tht  land  for  a  special  sum  and  agree- 
ing to  pay  them  a  commission  of  whatever  sum  they  realize 
above  that  amount.  Such  a  contract  is  binding  upon  both 
parties.  It  confers  an  option  upon  the  agents,  and  a  sale 
by  the  agents  under  such  a  contract  is,  as  the  law  regards 
it,  a  sale  made  by  them  in  the  capacity  of  vendors  upon 
their  own  account,  and  not  strictly  for  the  account  of  the 
owner  of  the  land.  If  the  agents  find  a  purchaser,  under 
such  a  contract  with  the  owner,  and  receive  a  deposit 
to  bind  the  bargain,  but  the  sale  does  not  go  through  be- 
cause a  title  insurance  company  will  not  insure  the  title 
to  the  land,  the  owner  has  no  claim  on  the  deposit,  and  the 
agents  have  a  right  to  refund  the  money  to  the  intending 
purchaser.  Such  option  to  real  estate  agents,  with  rela- 
tion, also,  to  a  deposit  received  upon  a  purchase  which 
afterwards  failed  to  go  through,  was  the  subject  of  a 
Supreme  Court  decision  in  this  State,  in  a  San  Francisco 
case.    C.  H.  Robinson  and  C.  B.  Hobson  executed  to  the 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  165 

real  estate  firm  of  Easton,  Eldridge  &  Co.  the  following 
instrument :  "We  hereby  authorize  Easton  &  Eldridge,  for 
us  and  within  five  days  from  date  hereof,  and  until  this 
authority  is  canceled  in  writing  by  us,  to  sell  for  the  sum 
of  $10,000 — net  dollars — the  following  described  property 
situated  in  the  City  and  County  of  San  Francisco,  State  of 
California,  to-wit :  All  of  block  935,  outside  lands ;  and  we 
will  pay  the  said  Easton  &  Eldridge  a  commission  of  all 
over  said  sum  of  $10,000,  net,  for  which  they  may  sell  said 
property  with  our  consent.  Witness  our  hand  and  seal 
this  twenty-fourth  day  of  August,  A.  D.  1887,  C.  B. 
Hobson,  C.  H.  Robinson."  The  real  estate  firm  found 
a  purchaser,  receiving  from  him  $1,050  as  a  deposit  on 
the  purchase  price  of  $10,500,  with  30  days  allowed  for 
search  of  title,  and  upon  the  condition  that  the  Title  In- 
surance Company  would  insure  the  title.  The  Title  Insur- 
ance Company  refused  to  insure  the  title,  and  Easton  & 
Eldridge  repaid  the  deposit  to  the  purchaser.  Then  Hobson 
and  Robinson  commenced  a  suit  against  the  agents  for  the 
deposit,  claiming  that  the  money  was  received  for  their 
account,  and  that  the  agents  had  no  right  to  pay  it  back 
to  the  purchaser.  The  Supreme  Court  decided  the  case  in 
favor  of  Easton,  Eldridge  &  Co.,  the  decision  of  the  court 
stating,  that  the  relation  of  the  defendants  to  the  plaintiffs 
was  not  that  of  a  mere  agent ;  that  while  their  authority  to 
sell  the  land  was  derived  from  the  plaintiffs,  yet  the  sale 
was  to  be  made  for  their  own  account  and  benefit,  as  well 
as  for  that  of  their  principals.  By  the  terms  of  the  author- 
ization from  their  principals,  Easton,  Eldridge  &  Co.  ac- 
quired such  a  right  to  a  portion  of  the  proceeds  of  sale  as 
to  enable  them  lawfully  to  make  a  contract  of  sale  upon 
terms  of  their  own  choosing.  The  principals,  in  effect, 
said  the  Supreme  Court,  gave  to  Easton,  Eldridge  &  Co. 
an  option  for  five  days  to  endeavor  to  sell  the  block  of  land 
for  whatever  sum  they  could  obtain,  and  upon  whatever 
terms  they  might  make,  provided  they  should  receive  there- 
for the  sum  of  $10,000,  and  agreed  that  the  agents  should 


166  BUSINESS   LAWS  FOR  BUSINESS   MEN.  , 

have  whatever  sum  they  could  realize  above  that  amount. 
The  relation  thus  created  between  them  was  rather  that 
of  a  vendor  and  purchaser  under  a  contract  of  sale  than 
one  of  principal  and  agent,  and  a  sale  by  the  agents  under 
such  a  contract  was  in  the  capacity  of  a  vendor  upon  their 
own  account,  and  not  solely  for  the  account  of  their  prin- 
cipal. The  agents  were  entitled  to  all  the  proceeds  of  the 
sale  in  excess  of  $10,000,  and  therefore  they  had  the  right 
to  make  the  sale  upon  such  terms  as  in  their  judgment 
would  enable  them  to  realize  the  highest  price  for  the  land. 
Upon  a  sale  by  them,  the  owners  were  entitled  to  the 
immediate  payment  of  the  $10,000,  but  the  agents  could 
sell  the  land  either  for  cash  or  upon  time,  as  they  might 
choose,  so  long  as  the  owners  received  their  money,  and  the 
terms  of  sale  made  by  the  agents  did  not  require  any  ratifi- 
cation by  the  owners.  And  upon  the  disapproval  of  the 
title  by  the  Title  Insurance  Company,  the  Supreme  Court 
decided,  the  purchaser  had  the  right  to  demand,  and  these 
agents  had  the  right  to  refund,  the  money  that  had  been 
received  by  them  as  a  deposit  upon  the  sale.  (Decided  by 
the  Supreme  Court  of  California,  in  the  case  of  Robinson 
vs.  Easton,  Eldridge  &  Co.,  reported  in  Volume  93  of 
California  Reports,  page  80.) 

Section  156.— FAILURE  OF  SALE  BY  DEFECTIVE 
TITLE. — Where  an  agent  is  employed  to  sell  land,  the  title 
to  prove  good  or  no  sale,  and  he  finds  a  purchaser,  ready, 
able,  and  willing  to  buy  upon  the  agreed  terms,  and  the 
title  proves  to  be  defective,  the  agent  is  nevertheless  en- 
titled to  his  commissions.  The  failure  of  the  sale  by  reason 
of  the  defective  title  is  not  the  fault  of  the  agent,  but  is  the 
fault  of  the  owner,  and  he  must  pay  the  agent's  commis- 
sions. 

Section  157.— FAILURE  OF  OWNER  TO  REMOVE 
DEFECTS. — Where  real  estate  agents  enter  into  a  con- 
tract   with    an    intending    purchaser,     acknowledging    the 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  167 

receipt  of  a  deposit,  and  stipulating  that  the  title  is  to  prove 
good  or  no  sale,  in  which  case  the  deposit  is  to  be  returned, 
and  such  contract  is  ratified  by  the  owner  of  the  land,  even 
though  not  in  the  first  place  authorized,  the  owner  is  bound 
by  it;  and  if  it  appears  that  there  is  a  defect  in  the  title,  it 
is  the  duty  of  the  owner  to  remove  the  defect  and  perfect 
the  title  within  the  time  limited  by  the  contract,  and  if  he 
does  not  do  so,  the  purchaser  will  be  discharged  from  his 
obligation,  and  will  be  entitled  to  the  return  of  his  money 
paid  on  deposit. 

Section  158.— RATIFYING  AUTHORITY  OF  BROK- 
ERS.— The  owner  may  ratify  by  his  subsequent  conduct 
the  unauthorized  act  of  the  brokers  in  stipulating  that  the 
title  shall  be  good  or  no  sale.  The  action  of  the  owner  of 
the  land  in  agreeing  to  the  contract  of  his  brokers  with 
the  intending  purchaser,  and  in  accepting  him  as  the  pur- 
chaser* of  the  property  upon  the  terms  of  such  contract, 
is  a  waiver  of  objection  that  the  brokers  exceeded  their 
authority  in  providing  in  the  contract  that  the  title  should 
prove  good,  or  that  there  would  be  no  sale.  And  in  this 
case  it  is  not  necessary  that  such  ratification  shall  be  in 
writing  as  between  the  owner  of  the  land  and  the  brokers, 
as  it  relates  to  no  interest  in  the  land,  in  so  far  as  it  affects 
the  brokers,  but  only  to  the  owner's  obligation  to  pay  them 
their  commission  when  earned. 


Section  159.— WHAT  IS  GOOD  TITLE.— A  title  to 
land,  to  be  good,  should  be  free  from  litigation,  palpable 
defects,  and  grave  doubts ;  and  it  should  consist  of  both 
legal  and  equitable  titles,  and  should  be  fairly  ascertain- 
able from  the  records.  A  perfect  title  is  one  that  must  be 
good  and  valid  beyond  all  reasonable  doubt.  Whether  the 
title  in  any  particular  case  is  good  or  not  is  a  question 
which  it  is  often  difficult  to  determine,  and  one  upon  which 
lawyers  and  judges  often  disagree. 


i68  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

Section  160.— SALE  BY  OWNER.— A  party  who  em- 
ploys a  real  estate  broker  to  sell  his  land  may,  notwith- 
standing, negotiate  a  sale  himself;  and  if  he  does  so  with- 
out any  agency  of  the  broker,  and  before  the  latter  has 
procured  a  purchaser,  he  is  not  liable  to  the  agent  for 
commissions.  But,  as  already  stated,  the  commission  of  a 
real  estate  agent  is  earned  by  finding  a  purchaser  ready, 
willing,  and  able  to  enter  into  a  valid  contract  for  the 
purchase  upon  the  terms  fixed  by  the  owner;  and  having 
introduced  such  a  one  to  the  owner,  the  agent  cannot  be 
deprived  of  his  right  to  commissions  by  the  owner  negotiat- 
ing a  sale  himself. 

Section  161.— COMMISSIONS  UPON  SALE  OR  EX- 
CHANGE BY  OWNER.— Where  by  the  terms  of  a  con- 
tract for  the  sale  of  real  estate  through  brokers,  they  are 
authorized  to  sell  the  property  for  the  owners  at  any  time 
within  a  year,  and  it  is  agreed  that  the  commission  shall 
be  paid  if  the  owners  should  withdraw  the  property  from 
sale  or  eflfect  a  sale  in  any  way  during  the  year,  the  brokers 
are  entitled  to  commissions  upon  sale  or  exchange  of  the 
land  by  the  owners  themselves,  and  need  not  show  that 
they  had  procured  or  could  have  procured  a  purchaser 
within  the  time  fixed  in  the  contract.  The  sale  or  exchange 
of  the  land  by  the  owner  himself  puts  it  beyond  the  power 
of  the  agent  to  thereafter  make  a  sale,  and  this  entitles 
the  agent  to  the  same  commissions  he  would  have  earned 
if  he  had  sold  the  land  for  the  amount  realized  by  the 
owners. 

Section  162.— SALE  BY  OWNER  THROUGH  AN- 
OTHER AGENT.— Where  by  the  terms  of  an  agreement 
conferring  a  sole  agency  for  the  sale  of  land,  the  principal 
agrees  to  pay  to  the  agent  the  same  commission  as  if  he 
had  procured  a  purchaser,  if  he  should  sell  or  agree  to  sell 
the  land  or  part  of  it  to  any  one  in  the  twelve  months  next 
ensuing,  an  immediate  obligation  to  pay  the  commission 
is  created  against  the  principal  by  virtue  of  the  contract. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  169 

when  the  principal  himself  effects  a  sale  through  another 
agent  within  that  period.  The  agent  first  appointed  has 
an  immediate  right  of  action  to  recover  his  commissions. 
And  the  owner  cannot  deduct  from  the  commissions  agreed 
to  be  paid  to  his  exclusive  agent  the  amount  of  commissions 
paid  by  him  to  another  agent  for  effecting  a  sale. 

Section  163.— MISREPRESENTATION  BY  OWNER. 

— Where  by  means  of  a  fraudulent  misrepresentation  of 
the  principal  that  he  had  not  sold  the  land,  and  had  changed 
his  intention  as  to  selling  it,  the  agent  having  an  exclusive 
right  of  sale  was  induced  to  accept  part  payment  of  his 
commission  in  satisfaction  of  the  obligation  of  the  principal, 
he  is  entitled  to  rescind  the  agreement  for  satisfaction, 
and  recover  the  full  amount  of  commission  which  had  pre- 
viously matured  in  his  behalf,  by  reason  of  a  sale  effected 
by  the  principal  of  which  he  was  ignorant. 

Section  164.— WHAT  CONSTITUTES  A  SALE  BY 
OWNER. — It  is  not  necessary,  in  order  to  constitute  a  sale 
by  the  owner  sufficient  to  entitle  the  agent  to  his  com- 
missions, that  the  owner  should  sell  for  cash,  or  upon  the 
same  terms  the  agent  was  authorized  to  effect,  or  that  he 
should  make  a  conveyance,  or  that  a  legal  title  should 
pass  to  his  purchaser.  In  a  case  decided  by  the  Supreme 
Court  of  California,  Shainwald,  Buckbee  &  Co.  sued  M.  K. 
Cady,for  commissions  on  the  sale  of  the  townsite  of  Agua 
Caliente.  In  the  written  agreement  given  by  Cady  to  the 
agents,  authorizing  them  to  find  a  purchaser,  it  was  stipu- 
lated that  if  Cady  himself  made  a  sale  of  the  property 
within  the  term  of  the  agreement,  the  agents  were  to  be 
allowed  two  per  cent  commissions  upon  the  amount  of 
such  sale ;  Cady  sold  the  land,  partly  on  credit,  and  the  pur- 
chaser afterwards  failed  to  make  stipulated  payments,  and 
surrendered  the  contract  and  delivered  up  possession  of 
the  land;  and  at  the  time  when  Shainwald,  Buckbee  &  Co. 
sued  Cady  for  their  commissions,  he  had  again  possession 


170  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

of  the  land.  The  Supreme  Court  decided  that  Shainwald, 
Buckbee  &  Co.  were  entitled  to  their  commissions,  because 
Cady  had  absolutely  placed  it  out  of  their  power  to  make 
a  sale  of  the  property  at  all.  Cady  had  received  a  portion 
of  the  purchase  price,  and  given  up  possession  of  the  prop- 
erty; and  although  the  purchaser  failed  to  keep  possession, 
and  surrendered  the  contract,  and  turned  the  possession 
back  to  Cady,  the  Supreme  Court  said  that  a  sale  was  con- 
summated sufficient  in  law  to  make  Cady  liable  to  the 
agents  under  their  agreement.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  Shainwald,  Buckbee  & 
Co.  vs.  M.  K.  Cady,  reported  in  Volume  92,  California  Re- 
ports, page  83.) 

Section  165.— LIABILITY  OF  AGENT  UNDER 
CONTRACT  TO  SELL  FOR    SPECIFIED  AMOUNT. 

— Where  an  agent  accepts  real  property  for  sale,  and  binds 
himself  in  writing  to  sell  the  property  within  a  certain  time 
for  a  certain  amount,  and  to  accept  all  over  that  sum  as  his 
compensation,  he  makes  himself  absolutely  liable  to  the 
owner.  And  if  he  fails  to  make  a  sale  for  the  amount 
stated  in  his  contract,  within  the  term  stipulated,  the  owner 
can  sue  him  for  damages.  The  owner  will  be  entitled  to 
recover  from  the  agent  as  damages  the  difference  between 
the  actual  market  value  of  the  land,  at  the  end  of  the  term 
within  which  it  was  to  be  sold,  and  the  amount  the  agent 
bound  himself  to  realize  from  it  for  the  owner. 

Section  166.— LIABILITY  OF  OWNER  TO  AUC- 
TIONEER.— One  representing  himself  as  the  owner  of 
real  estate,  who  employs  an  auctioneer  to  sell  the  same 
under  an  agreement  that,  in  the  event  of  a  sale,  the  auc- 
tioneer shall  receive  for  his  services  a  percentage  on  the 
amount  bid,  cannot,  after  a  sale  by  the  auctioneer,  avoid 
paying  him  for  his  services  because  the  purchaser  refuses 
to  take  the  property,  owing  to  a  real  or  alleged  defect  in 
the  title.     The  auctioneer    in    such    case    is    entitled    to 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  171 

compensation  for  his  services,  unless  there  is  a  special 
agreement  that  it  shall  depend  on  the  consummation  of  the 
sale. 

Section  167.— WHAT  AGENT  MUST  PROVE  IN 
SUIT  TO  RECOVER  COMMISSIONS.— Where  an  agent 
is  compelled  to  sue  for  his  commissions,  for  effecting  a  sale 
of  real  estate,  to  entitle  him  to  judgment  in  his  favor,  he 
must  show  that  he  was  employed  by  or  on  behalf  of  the 
owner  to  make  the  sale,  and  that  his  authority,  or  some 
note  or  memorandum  thereof,  was  in  writing,  subscribed 
by  the  party  to  be  charged,  or  by  his  authorized  agents. 
And  before  an  agent  can  be  said  to  have  earned  his  com- 
mission, it  must  also  be  shown  that  he  produced  a  pur- 
chaser, who  was  ready  and  willing  and  able  to  make  the 
purchase  on  terms  satisfactory  to  his  employer,  and  that  he 
was  the  efficient  agent  or  procuring  cause  of  the  sale.  The 
duty  assumed  by  the  broker  is  to  bring  the  minds  of  the 
buyer  and  seller  to  an  agreement  for  a  sale,  and  the  price 
and  terms  on  which  it  is  to  be  made,  and  until  this  is  done, 
his  right  to  commissions  does  not  accrue.  It  must  further 
appear  that  the  broker  performed  the  duty  assumed  by 
him  within  the  time  limited  in  his  contract,  or  within  such 
extension  of  time  as  may  have  been  granted  by  his  em- 
ployer. If  he  failed  to  do  that,  he  is  not  entitled  to  the 
commission,  even  though  he  made  efforts  to'  sell  the  prop- 
erty, and  first  called  it  to  the  attention  of  the  party  who 
subsequently  made  the  purchase,  unless  the  delay  was 
caused  by  the  negligence,  fault,  or  fraud  of  the  owner. 
Civil  Code,  Section  1624. 

Section  168.— AGENT'S  MISTAKE  AS  TO  TITLE.— 

When  the  agent  has  received  a  deposit,  and  the  purchaser 
afterwards  claims  that  the  title  is  not  good  and  demands 
the  deposit  back,  the  agent,  if  he  be  a  simple  agent  to  sell, 
will  take  his  own  chances  if  he  returns  the  deposit  to  the 
purchaser.     For  if  the  owner  insists  upon  the  purchaser 


172  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

taking  the  lands,  and  litigation  follows,  and  it  is  decided 
that  the  title  to  the  land  was  in  reality  good,  the  agent  will 
be  compelled  to  pay  the  amount  of  the  deposit  to  the  owner, 
less  his  commissions,  even  though  he  has  already  returned 
the  deposit  to  the  purchaser;  and  he  will  not  be  protected 
by  the  fact  that  he  obtained  the  opinion  of  an  attorney, 
and  acted  upon  it  in  good  faith,  that  the  title  was  not  good, 
before  returning  the  deposit.  His  liability  for  the  deposit 
to  his  principal  will  depend  upon  the  fact,  whether  the  title 
was  or  was  not  good,  and  not  upon  what  he  or  anybody 
else  may  have  thought  about  it,  and  the  only  way  to  deter- 
mine the  matter  definitely  is  by  a  judgment  of  a  court. 

Section  169.— REPUDIATION  OF  CONTRACT  BY 
VENDOR. — Real  estate  agents  may  recover  from  their 
principal  the  commission  agreed  upon  for  a  sale  secured 
by  them,  if  the  proposed  contract  of  sale  was  not  beyond 
their  authority,  though  the  vendor  refuses  absolutely  to 
consummate  the  purchase  or  to  negotiate  with  reference 
to  it.  It  is  immaterial  whether  the  power  conferred  upon 
real  estate  agents  is  to  sell  or  merely  to  secure  a  purchaser, 
so  far  as  their  right  to  recover  the  agreed  commission  is 
concerned,  if  they  comply  with  their  part  of  the  contract  in 
procuring  a  purchaser,  to  whom  the  vendor  refuses  to 
convey. 

Section  170.— TERMS  OF  PAYMENT,  AND  RE- 
FUSAL TO  ACCEPT  TENDER.— A  contract  between  a 
vendor  and  a  real  estate  agent,  providing  that  the  terms 
of  payment  are  to  be  as  buyer  and  seller  may  agree,  does 
not  impose  upon  the  agent  the  duty  of  selling  for  cash, 
even  if  it  be  construed  as  reserving  to  the  vendor  the  right 
to  agree  upon  the  terms  in  person ;  and  there  can  be  no 
reasonable  objection  to  the  terms  of  payment  as  a  defense 
to  the  recovery  of  commissions,  if  when  cash  was  tendered 
"by  the  purchaser,  no  objection  was  made  on  account  of  the 
terms.    When  the  vendor  has  refused  to  accept  the  tender 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  173 

of  the  purchase  money,  and  repudiated  the  contract  made 
by  his  real  estate  agent  with  the  purchaser,  he  cannot 
defend  against  the  payment  of  commissions  on  the  ground 
that  the  purchase  money  was  not  paid. 

Section  171.— HUSBAND  GIVING  AGENT  PROP- 
ERTY OF  WIFE  TO  SELL.— Where  a  vendor  gives  to 
real  estate  agents  the  property  of  his  wife  to  sell  as  his 
property,  and  describes  it  in  the  contract,  and  they  pro- 
cure a  purchaser  without  knowledge  that  the  title  was  not 
in  the  vendor,  his  want  of  title  cannot  affect  their  right  to 
recover  their  commissions  from  him. 

Section  172.— WHAT  CONSTITUTES  FINDING  A 
PURCHASER. — To  find  a  purchaser  means  more  than 
to  procure  some  one  who  will  offer  to  negotiate  for  the 
purchase.  It  implies  the  production  of  one  who  is  not 
only  ready  and  willing  to  comply  with  the  terms  of  the 
purchase,  but  who  has  also  the  present  ability  to  consum- 
mate it,  and  to  comply  with  all  of  its  terms,  and  who  is 
also  willing  and  ready  to  do  all  the  acts  that  may  be  re- 
quired to  make  an  actual  purchase  of  the  land.  To  pro- 
duce one  who  makes  an  offer  to  purchase,  and  who  is 
without  means,  or  who  is  not  in  condition  to  comply  with 
the  terms  of  the  sale,  and  against  whom  a  claim  for  dam- 
ages resulting  from  a  failure  to  perform  the  contract  of 
purchase  could  not  be  enforced,  does  not  constitute  the 
finding  of  a  purchaser  within  the  meaning  of  the  law ;  and 
the  mere  statement  by  one  who  is  produced  that  he  is 
ready  and  willing  to  make  the  purchase,  is  not  sufficient, 
for  he  must  satisfy  the  owner  that  he  has  the  ability  to 
do  so.  Upon  the  production  of  such  purchaser,  if  the  trans- 
action is  not  to  be  consummated  by  an  immediate  delivery 
of  the  deed  and  payment  of  the  purchase  price,  the  owner 
has  the  right  to  demand  that  a  valid,  enforceable  contract 
for  the  purchase  of  the  land  shall  be  executed  by  him. 
The  owner  may,  however,   waive  the   execution   of  such 


174  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

contract ;  as,  if  after  the  broker  has  introduced  the  purchaser 
to  him,  he  himself  assumes  to  prepare  a  contract,  or  to 
deal  with  the  purchaser  upon  other  terms,  or  accepts  a 
verbal  obligation  from  him. 

Section  173.— OWNER  AND  PURCHASER  NEED 
NOT  BE  BROUGHT  FACE  TO  FACE.— It  is  not  essen- 
tial, to  entitle  the  agent  to  his  commissions,  that  he  should 
bring  the  owner  and  the  purchaser  face  to  face.  If  the 
agent  secures  from  the  purchaser  a  valid  contract,  accord- 
ing to  the  terms  of  his  agreement  with  his  principal,  and 
a  deposit  of  money  if  required,  and  the  purchaser  is  really- 
ready,  willing,  and  able  to  complete  the  purchase  accord- 
ing to  the  terms  proposed,  the  agent  has  performed  his 
duty  as  fully  as  though  the  parties  had  been  brought 
together  in  person. 

Section    174.— AMOUNT    OF    COMMISSIONS.— The 

amount  of  compensation  or  commissions  which  a  real 
estate  agent  shall  receive  will  in  all  cases  depend  upon  his 
contract  with  the  owner,  if  the  contract  makes  any  pro- 
vision in  respect  to  it;  and,  in  the  absence  of  any  agree- 
ment on  the  amount  of  commission,  it  will  be  measured 
by  the  value  of  the  service  rendered,  and  the  agent  will 
be  entitled  to  a  reasonable  compensation,  to  be  ascertained 
from  all  the  circumstances. 

Section  175.— PREVENTION  OF  SALE  BY  OWNER. 

— If  the  owner  in  fact  has  a  good  title,  but  goes  to  the 
purchaser,  or  to  the  purchaser's  attorney,  and  makes  rep- 
resentations for  the  purpose  of  defeating  the  sale,  and 
makes  the  intended  purchaser  believe  that  the  title  is  bad, 
and  the  latter  refuses  to  proceed  with  the  transaction  in 
consequence,  the  broker  is  entitled  to  his  commission. 

Section  176.— WHEN  PURCHASER  AND  OWNER 
ARE  NOT  BROUGHT  TOGETHER,  PURCHASER 
MUST  SIGN  A  WRITTEN  CONTRACT.— If  the  agent 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  175 

does  not  produce  the  purchaser  before  the  owner  in  per- 
son, ready  and  willing  to  enter  into  a  contract,  the  pur- 
chaser must  sign  a  written  contract,  and  this  written  con- 
tract must  be  delivered  by  the  agent  to  the.  owner.  This 
important  rule  as  to  the  duty  of  the  agent  was  stated  by 
the  Supreme  Court  of  California  in  a  case  where  B.  M. 
Gunn,  a  real  estate  broker,  sued  the  Bank  of  California  for 
commissions.  The  Superior  Court  of  San  Francisco  de- 
cided that  Gunn  was  entitled  to  commissions,  but  the 
Supreme  Court  set  the  judgment  aside,  and  decided  that 
upon  the  facts  the  broker  was  not  entitled  to  commissions. 
Gunn  had  a  contract  with  the  bank,  by  which  he  was  to  sell 
certain  property  within  a  certain  time  for  $41,000,  and  was 
to  receive  $1,000  as  his  commission  for  making  the  sale; 
he  found  one  Keating,  within  the  time,  who  was  ready, 
able,  and  willing  to  purchase  at  the  price  of  $41,000,  but 
his  agreement  with  Keating  was  oral  only,  and  Keating 
signed  nothing,  although  he  orally  agreed  to  buy  for  the 
price  stated  and  paid  $500  on  account,  and  took  a  receipt 
signed  by  Gunn  alone ;  the  receipt  recited  that  Keating 
was  to  have  twenty  days  within  which  to  examine  the 
title  to  the  property.  On  the  same  day  Gunn  sent  to  a 
Mr.  Brown,  who  was  acting  for  the  bank  in  the  matter,  the 
following  letter :  "Dear  Sir :  I  beg  leave  to  inform  you  that 
I  have  this  day  sold  the  lot  and  improvements  known  as 
the  Golden  Gate  Flour  Mill  Property  for  the  sum  of  forty- 
one  thousand  dollars,  less  one  thousand  dollars  commission, 
and  have  given  purchaser  twenty  days  to  examine  title  to 
same.  Please  send  me  abstract  and  approval  of  sale,  and 
oblige."  This  letter  was  returned  by  Brown  with  this 
endorsement:  "I  herewith  approve  above  sale.  The  Bank 
of  California.  Thomas  Brown."  Keating  refused  to  com- 
plete the  sale,  on  account  of  a  defect  in  the  title.  Keating 
was  financially  able  to  pay  the  price  he  orally  agreed  to 
pay  for  the  land,  but  he  signed  no  contract  which  bound 
him  to  complete  the  purchase  in  case  the  title  to  the  land 
was  perfect,  and  Gunn  did  not  introduce  him  to  Brown,  or 


176  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

inform  Brown  who  was  the  purchaser  referred  to  in  his 
letter,  and  Brown  did  not  learn  the  intended  purchaser's 
name  until  about  the  time  the  title  was  rejected  by  Keat- 
ing's  attorney.  In  the  suit  brought  by  Gunn  for  the  $1,000 
commission,  the  Supreme  Court  held  that,  as  Keating  had 
not  signed  any  contract,  and  had  not  been  produced  before 
Brown  as  the  purchaser,  Gunn  had  not  "found  a  purchaser,'' 
as  the  law  reads,  and  was  not  entitled  to  the  commissions. 
And  the  Supreme  Court,  in  its  decision  of  the  case,  said: 
"The  question  here  is,  What  is  'finding'  or  'producing'  a 
purchaser  within  the  meaning  of  the  law?  Is  it  sufficient 
for  a  broker  to  merely  find  a  person  financially  able,  and 
who  verbally  agrees  with  him  to  purchase  upon  the  terms 
of  the  vendor,  and  makes  a  deposit,  but  who  neither  signs 
a  binding  agreement  to  purchase  upon  the  terms  of  the 
vendor,  nor  is  produced  before  the  vendor  as  a  person 
ready  and  willing  to  enter  into  such  a  contract?  It  seems 
to  us  very  clear  that  this  question  must  be  answered  in 
the  negative.  The  contract  of  the  broker  is  to  negotiate 
a  sale,  that  is,  to  procure  a  valid  contract  to  purchase, 
which  can  be  enforced  by  the  vendor  if  his  title  is  perfect; 
or  if  he  does  not  procure  such  contract,  to  bring  the  vendor 
and  the  proposed  purchaser  together,  that  the  vendor  may 
secure  such  a  contract,  unless  he  is  willing  to  trust  to  an 
oral  agreement.  This  contract  on  the  part  of  the  broker 
is  complete,  when  he  delivers  or  tenders  to  the  owner  a 
valid  written  contract,  containing  the  terms  of  sale  agreed 
on,  signed  by  a  party  able  to  comply  therewith,  or  able  to 
answer  in  damages  if  he  should  fail  to  perform.  This  is 
all  the  agent  can  do,  and  when  it  is  done  he  is  entitled 
to  his  commissions.  But  the  necessity  of  a  written  con- 
tract of  sale  may  be  rendered  unnecessary  if  the  agent  bring 
the  vendor  and  vendee  together,  and  the  latter  is  able  and 
willing,  and  offers  to  complete  the  contract,  provided  the 
vendor  will  make  the  conveyance.  In  such  a  case  the  agent 
has  done  all  that  he  can  do,  and  if  the  vendor  under  such 
circumstances  refuses  to  complete  the  sale,  he  nevertheless 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  177 

will  be  compelled  to  pay  the  agent  his  commissions.  The 
object  of  the  vendor  is  to  effect  a  sale  of  his  property,  and 
when  the  real  estate  broker  produces  a  contract  executed 
by  a  solvent  purchaser,  he  is  then  entitled  to  pay  for  his 
services,  whether  the  trade  is  finally  consummated  or  not, 
because  if  the  vendee  refuses  to  take  the  property,  the 
vendor  holds  the  contract,  which  renders  the  vendee  liable 
for  all  damages  (including  commissions  paid  by  the  vendor 
to  the  broker)  for  a  failure  to  comply.  The  right  of  Gunn 
to  the  agreed  compensation  depends  upon  the  performance 
of  his  contract  to  procure  a  purchaser,  and  as  he  did  not 
do  this,  and  defendant  neither  waived  nor  prevented  such 
performance,  he  has  not  earned  his  commission."  (De- 
cided by  the  Supreme  Court  of  California  in  the  case  of 
Gunn  vs.  Bank  of  California,  reported  in  Volume  99,  Cali- 
fornia Reports,  page  349.) 

Section  177.— WHEN  OWNER  MUST  RETURN 
MONEY  PAID  ON  CONTRACT.— A  vendor  under  con- 
tract for  the  sale  of  land,  who  has  received  a  part  of  the 
purchase  price  at  the  time  of  the  execution  of  the  contract, 
cannot  rescind  the  contract  on  account  of  the  non-payment 
of  the  balance  of  the  purchase  price  on  the  day  stipulated 
for  in  the  agreement,  without  returning  or  offering  to 
return  to  the  vendee  the  money  that  he  has  received  on 
account  of  the  contract.  When  a  contract  of  sale  and  pur- 
chase of  lands  is  abandoned  or  rescinded  by  the  parties,  the 
vendee,  though  in  default,  may  recover  back  installments 
of  the  purchase-money  paid,  less  the  actual  damage  to  the 
vendor  occasioned  by  his  breach  of  the  contract. 

Section  178.— AGREEMENT  BETWEEN  AGENTS 
TO  COOPERATE  IN  SELLING.— Real  estate  agents 
may  cooperate  in  the  selling  of  land,  for  a  share  of  the 
commissions,  and  such  agreement  between  themselves  need 
not  be  in  writing.  The  agreement  will  be  sufficient,  if 
made  orally,  and  the  courts  will  enforce  it. 


178  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Section  179.— AUTHORITY  TO  SELL  ON  CREDIT. 

— When  a  real  estate  agent  receives  authority  from  the 
owner  to  sell  land  on  credit,  the  time  of  credit  specified 
in  their  agreement  is  the  measure  of  the  agent's  authority. 
Where  the  agreement  authorizes  the  agent  to  sell  on 
credit,  but  does  not  specify  the  time  of  credit,  the  agent 
must  use  his  discretion  in  the  matter,  and  has  authority  to 
give  the  purchaser  a  reasonable  credit ;  and  the  credit  given, 
to  be  reasonable,  must  be  such  as  is  usual  and  customary 
on  sales  of  real  estate  in  the  particular  vicinity.  There  is 
no  set  rule  as  to  what  will  be  considered  a  reasonable  credit, 
but  the  question  must  be  determined  from  all  the  circum- 
stances in  each  particular  case. 

Section  180.— POWER  OF  ATTORNEY  TO  AGENT 
TO  MAKE  DEED. — The  question  as  to  what  is  necessary 
in  a  power  of  attorney  for  the  sale  of  land,  to  authorize  the 
agent  to  execute  and  deliver  a  deed  to  the  purchaser, 
must  be  determined  in  each  case  upon  its  own  peculiar 
circumstances.  As  between  the  parties  to  the  transaction, 
it  is  proper  to  consider  their  situation  at  the  time  of  the 
execution  of  the  power  of  attorney,  and  their  intention  is 
to  be  gathered  from  the  words  of  the  instrument,  and  all 
the  circumstances  under  which  it  was  written.  A  power  of 
attorney  for  the  sale  of  land  is  sufficient  as  between  the 
parties  to  the  transaction,  whether  properly  acknowledged 
or  recorded,  or  not,  if  it  is  otherwise  valid. 

Section  181.— RISK  OF  PURCHASER  WHO  TAKES 
LAWYER'S  ADVICE  AS  TO  TITLE.— A  purchaser  of 
land  is  not  justified  in  refusing  to  accept  a  conveyance,  and 
in  demanding  back  a  deposit  paid  by  him  on  account  of 
purchase-money,  merely  because  of  the  opinion  of  his  law- 
yer, though  given  in  good  faith,  that  the  title  is  not  safe, 
if  the  opinion  is  erroneous,  and  the  record  title  is  in  fact 
perfect.  The  purchaser  must  take  the  risk  of  the  sound- 
ness of  the  advice  upon  which  he  acts. 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  179 

Section  182.— LIABILITY  OF  AUCTIONEER  FOR 
DEPOSIT  AT  AUCTION  SALE.— Although  by  the  terms 
of  an  auction  sale  a  deposit  of  a  percentage  of  the  cash 
payment  with  the  auctioneer  pending  the  examination  of 
the  title,  which  is  warranted  perfect,  makes  the  auctioneer 
a  stakeholder  for  the  parties;  yet  when  the  title  is  shown 
to  be  perfect,  the  deposit  then  becomes,  according  to  the 
terms  of  the  sale,  a  portion  of  the  cash  payment,  and  the 
property  of  the  owner  of  the  land,  less  the  charges  and 
commissions  of  the  auctioneer;  and  the  auctioneer  cannot 
thereafter  return  it  to  the  purchaser  except  at  his  own  risk. 

Section  183.— AGENT'S  KNOWLEDGE  OF  TITLE.— 

A  real  estate  agent  has  nothing  to  do  with  the  title  or 
ownership  of  the  property,  and  his  knowledge  as  to  the 
title,  or  the  equitable  estate  of  a  third  person  therein,  is 
of  no  consequence;  and  his  right  to  the  compensation 
contracted  for  does  not  in  any  way  depend  on  the  validity 
or  invalidity  of  the  owner's  title  to  the  property. 

Section  184.— INTEREST  ALLOWED  BY  LAW  ON 
AGENT'S  COMMISSIONS.— A  demand  for  broker's 
commissions,  which  is  capable  of  being  made  certain  by 
computation,  draws  interest  from  the  time  when  it  became 
due. 

Civil  Code,  Section  3287, 

Section  185.— HOW  AUTHORITY  OF  AGENT  CAN 
BE  EXTENDED.— When  the  term  of  a  real  estate  agent's 
employment  is  about  to  expire,  the  authority  of  the  agent 
cannot  be  extended  by  a  verbal  agreement.  The  extension 
of  the  term  of  his  employment,  like  the  original  agree- 
ment, must  be  in  writing. 

Section  186.— COSTS  IN  SUIT  FOR  COMMISSIONS. 

— Where  a  real  estate  agent  sues  in  the  Superior  Court 
for  commissions,  he  will  have  to  pay  the  costs  of  the  court 


180  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

— Clerk's  fees,  Sheriff's  fees,  Reporter's  fees,  jury  fees — if 
the  verdict  in  his  favor  be  for  less  than  $300.  In  other 
words,  the  agent  must  secure  a  judgment  for  at  least  $300, 
or  he  will  not  be  entitled  to  costs.  If  the  agent  sues  in  the 
Justice  Court,  for  less  than  $300,  the  judgment  in  his  favor 
will  carry  the  costs.  . 

Code  of  Civil  Procedure,  Section  1022. 

Section  187.— COMMISSIONS  OUT  OF  PURCHASE- 
MONEY. — Where  the  agreement  between  the  owner  and 
the  agent  is,  that  the  agent  is  to  receive  his  commissions 
"out  of  the  purchase-money,"  or  "out  of  the  first  money 
received"  on  the  sale,  the  agent  will  not  be  entitled  to  any 
commissions  at  all,  if  the  sale  does  not  go  through.  Under 
such  a  contract,  the  sale  must  be  completed,  and  the  money 
paid  by  the  vendee,  before  the  agent  is  entitled  to  com- 
missions. 

Section  188.— SELLING  LAND  ON  SHARES.— Under 
an  agreement  between  a  land  owner  and  a  broker,  whereby 
the  latter  is  to  sell  the  land  for  a  share  of  the  proceeds  above 
the  cost  price  and  selling  expenses  after  all  the  land  is  sold, 
the  procuring  of  a  purchaser  for  all  the  tract,  who  is  ac- 
cepted by  the  owner  and  with  whom  an  executory  contract 
is  made,  is  a  sufficient  performance  of  the  agreement  to 
entitle  the  broker  to  his  share  of  the  profits. 

Section  189.— PURCHASE  BY  AGENT  FROM  HIM- 
SELF.— An  agent  or  sub-agent  employed  to  assist  in  the 
consummation  of  a  sale  of  land  is  incapable  of  legally  pur- 
chasing the  property  from  himself  without  the  knowledge 
of  the  principal,  and  such  a  purchase  will  always  be  set 
aside,  at  the  option  of  the  principal.  The  reason  is,  that 
the  agent  should  not  unite  his  personal  and  his  representa- 
tive characters  in  the  same  transaction ;  he  cannot  serve  two 
masters ;  and  the  law  will  not  permit  him  to  be  exposed  to 
the  temptation,  or  brought  into  a  situation  where  his  own 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  181 

personal  interests  conflict  with  the  interests  of  his  prin- 
cipal, and  with  the  duties  which  he  owes  to  his  principal. 
The  fiduciary  relations  between  a  principal  and  his  agent 
preclude  the  latter  from  having  any  interest  in  the  subject- 
matter  of  his  agency  adverse  to  that  of  his  principal.  In 
the  employment  of  an  agent  the  principal  bargains  for  his 
disinterested  skill  and  diligence,  and  whenever  the  interests 
of  the  agent  become  antagonistic  to  those  of  his  employer 
he  violates  his  obligation  by  continuing  to  act  in  his  behalf 
without  disclosing  that  fact.  A  broker,  who  is  employed  by 
the  owner  to  sell  his  property,  is,  by  the  mere  fact  of  ac- 
cepting such  employment,  precluded  from  acquiring  an 
interest  in  the  property  he  is  employed  to  sell.  He  cannot 
act  as  such  agent  in  making  a  sale  either  to  himself  or  where 
he  is  interested  in  the  purchase,  and  he  is  equally  precluded 
from  having  a  personal  interest  in  the  result  of  the  sale  of 
which  his  principal  is  ignorant.  Whenever  he  has  an  in- 
terest in  making  the  sale  which  is  antagonistic  to  that  of 
his  principal,  he  is  unable  to  discharge  his  full  duty  to  the 
latter,  and  by  continuing  to  act  as  his  agent  without  dis- 
closing to  him  the  fact  of  such  interest  he  commits  a  fraud 
upon  him  which  will  deprive  him  of  all  right  to  compensa- 
tion for  services.  (Decided  by  the  District  Court  of  Appeal, 
in  the  case  of  Rauer's  Law  and  Collection  Co.  vs.  W.  B. 
Bradbury,  which  decision  is  printed  in  Volume  II  of  Cali- 
fornia Appellate  Decisions,  No.  86,  page  377.) 

Section  190.— PURCHASE  BY  AGENT  FROM  PRIN- 
CIPAL.— While  an  agent  cannot  purchase  from  himself, 
he  may,  where  all  the  circumstances  show  fair  dealing  and 
good  faith,  purchase  land  from  his  principal,  although  it 
was  placed  in  his  hands  to  sell  to  others.  There  is  no  law 
against  a  purchase  by  an  agent  from  his  principal,  where 
the  facts  are  fully  disclosed  to  the  principal,  and  the  agent 
acts  in  good  faith,  taking  no  advantage  of  his  situation. 
The  principal  may,  if  he  sees  fit,  deal  with  the  agent  as 
with  any  other  person.     The  agent  has  the  same  right  to 


182  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

deal  directly  with  his  principal  as  has  a  stranger.  And 
when  the  agent  deals  with  his  principal  at  arm's  length, 
and  after  a  full  disclosure  of  all  that  he  knows  with  respect 
to  the  property,  the  sale  will  be  as  valid  as  though  the 
purchase  had  been  made  by  a  stranger. 

Section  191.— AGENT  BUYING  IN  HIS  OWN  NAME. 

— When  the  agent  is  employed  by  his  principal  to  buy  real 
estate,  and  uses  the  principal's  money  in  making  a  purchase 
of  land,  but  has  the  deed  made  in  his  own  name,  the  law 
will  not  permit  him  to  gain  any  advantage  by  the  trans- 
action. He  will  be  held  as  a  trustee  for  the  principal,  and 
will  be  compelled  to  convey  the  land  to  the  principal. 

Section  192.— WHEN  AUTHORITY  OF  AGENT 
REVOCABLE. — Where  a  real  estate  agent  has  authority 
to  sell  land,  if  no  time  is  stated  within  which  the  sale  can 
be  made,  the  authority  is  revocable  at  the  will  of  the  owner, 
at  any  time  before  it  has  been  exercised. 

Section  193.— WHICH  ONE  OF  TWO  BROKERS  IS 
ENTITLED  TO  COMMISSIONS.— When  two  brokers 
have  been  employed  by  an  owner,  and  one  of  them  in  fact 
names  the  property  to  the  purchaser,  and  the  purchaser 
negotiates  solely  with  him  and  at  his  instance  with  the 
owner,  the  other  broker  is  not  entitled  to  commissions, 
notwithstanding  he  casually  learns  that  such  purchaser  is 
considering  the  expediency  of  making  the  purchase,  and 
therefore  calls  upon  him  and  urges  the  purchase,  and  reports 
his  name  to  the  owner.  Only  the  broker  whose  efforts 
were  the  procuring  cause  of  the  sale  is  entitled  to  the  com- 
missions from  the  principal. 

Section  194.— AUTHORITY  OF  AGENT  MAKING 
LEASE  FOR  TERM  LONGER  THAN  ONE  YEAR.— 

Where  a  real  estate  agent  is  authorized  to  lease  land  of 
his  principal,  he  cannot  make  a  lease  for  a  term  longer  than 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  183 

one  year,  unless  his  authority  to  make  the  lease  is  in  writ- 
ing. The  authority  of  an  agent  to  make  a  lease  for  a  period 
in  excess  of  one  year  must  be  in  writing,  and  cannot  be 
conferred  by  oral  contract.  A  lease  by  an  agent  exceed- 
ing the  term  of  one  year  cannot  operate  as  a  valid  lease 
for  one  year,  the  agent's  authority  not  being  in  writing. 
Where  the  owner  of  land,  without  knowledge  of  a  lease 
made  by  an  agent  without  authority,  has  rented  the  land 
to  another,  no  power  remains  in  him  to  ratify  the  pre- 
vious unauthorized  act  of  his  agent. 
Civil  Code,  Section  1624. 

Section  195.— DEATH  OF  PRINCIPAL  REVOKES 
AUTHORITY  OF  AGENT.— The  death  of  the  principal 
revokes  the  authority  of  the  agent,  except  where  the  agent's 
authority  is  coupled  with  an  interest  in  the  land.  In  order 
that  the  agent's  authority  shall  survive  the  death  of  his 
principal,  it  is  necessary  that  such  an  interest  or  estate 
shall  have  passed  to  the  agent  as  will  entitle  him  to  execute 
the  authority  to  sell  in  his  own  name.  Sometimes,  the 
agent  will  hold  a  power  of  attorney,  from  which  it  can  be 
seen  that  he  has  an  interest  in  the  land,  and  that  it  was 
the  intention  of  his  principal  that  the  power  should  be 
irrevocable  by  death.  But,  whatever  form  the  agent's 
written  authority  may  be  in,  his  right  to  commissions,  or 
the  principal's  promise  to  pay  commissions  on  the  sale, 
will  not  of  themselves  be  sufficient  to  create  an  agency 
which  will  survive  the  principal's  death.  The  agent  must 
have  acquired  by  his  power  from  the  principal  an  interest 
in  the  land  itself.  What  constitutes  an  interest  in  the  land, 
sufficient  for  keeping  alive  an  agent's  authority  after  the 
principal's  death,  depends  very  much  upon  the  circum- 
stances of  each  particular  case — so  much  so  that  illustra- 
tions of  the  rule  here  would  not  be  of  value. 

Section  195a.— COMMISSIONS  ON  SALES  OF  REAL 
PROPERTY    UNDER    ORDER    OF    COURT.— In    the 


184  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

settlement  of  an  estate,  in  any  order  of  sale  of  real  estate,  or 
subsequent  to  making  any  such  order,  the  court  may 
authorize  any  executor  or  administrator  to  enter  into  a  con- 
tract with  any  bona  fide  real  estate  agent  to  secure  a  pur- 
chaser, providing  for  the  payment  by  the  estate  to  said 
agent  of  a  commission,  the  amount  of  which  shall  be  speci- 
fied, payable  out  of  the  proceeds  of  any  such  sale.  If  a  sale 
to  a  purchaser  obtained  by  such  agent  is  returned  to  the 
court  for  confirmation  and  said  sale  be  confirmed  to  such 
purchaser,  such  contract  will  be  binding  and  valid  as 
against  the  estate. 

By  the  execution  of  any  such  contract  no  personal  lia- 
bility will  attach  to  the  executor  or  administrator,  and  no 
liability  of  any  kind  will  be  incurred  by  the  estate  unless  an 
actual  sale  is  made  and  confirmed  by  the  court. 

Act  of  the  Legislature,  approved  March  10,  1909. 

Section   195b.— PERSONAL   PROPERTY   BROKERS. 

— A  personal  property  broker  may  charge,  receive,  and  col- 
lect, for  money  loaned  or  advanced  on  personal  property, 
secured  by  chattel  mortgage,  bill  of  sale,  or  other  contract, 
or  secured  by  an  assignment  or  power  of  attorney  respect- 
ing wages,  salary,  earnings  or  income,  the  sum  of  five  per 
cent  per  month,  and  no  more.  If  any  larger  amount  is 
charged  or  collected,  the  entire  contract  will  be  void. 
Act  of  the  Legislature,  approved  April  16,  1909. 

Fire  Insurance  Contracts 

Section  196.— CONTRACT  BETWEEN  THE  PAR- 
TIES.— Insurance  against  loss  by  fire  constitutes  one  of 
the  common  and  important  contracts  in  the  business  of 
every  community.  In  California  the  fire  insurance  business 
is  carried  on  by  corporations,  nearly  all  having  ample  cap- 
ital, and  fully  able  to  meet  such  losses  as  they  are  required 
to  pay.  Yet  so  many  and  so  varied  are  the  policies  issued, 
and  the  circumstances  and  causes  of  fires  and  losses,  and 
the    claims    and    adjustments    of    claims    after    fires    have 


BUSINESS   CONTRACTS  AND  LEGAL  OBLIGATIONS.  185 

occurred,  that  it  is  not  a  matter  for  wonder  that  conflicts  are 
continually  arising  between  the  insurer  and  the  insured, 
over  the  terms  and  conditions  of  the  contract  and  the 
rights  and  obligations  of  the  parties.  The  Legislature  has 
attempted  in  our  statute  law  to  fix  the  mutual  obliga- 
tions and  liabilities  of  the  parties  to  the  contract  of  fire 
insurance,  and  the  Supreme  Court  of  California  has  in 
many  decisions  stated  definite  rules  of  construction  which 
must  be  applied  to  the  policies  issued  by  insurance  com- 
panies. The  contract  of  insurance  is  generally  defined  by 
the  statute  of  California  as  being  a  contract  whereby  one 
undertakes  to  indemnify  another  against  loss,  damage,  or 
liability  arising  from  an  unknown  or  contingent  event 
Insurance  against  fire  is  a  contract  whereby  the  insurer 
becomes  bound,  for  a  definite  premium  or  consideration, 
to  indemnify  the  insured  against  loss  or  damage  to  the 
property  named  in  the  policy.  The  policy,  and  the  con- 
ditions contained  in  it,  fix  the  relations  between  the  parties 
to  the  contract,  and  furnish  the  measure  of  their  respective 
rights  and  liabilities. 

Civil  Code,  Section  2527. 

Section    197.— DESIGNATION    OF    PARTIES.— The 

party  who  issues  the  policy  of  fire  insurance  is  called  the 
insurer,  and  the  party  who  is  indemnified  is  called  the 
insured. 

Civil  Code,  Section  2538. 

Section  198.— INSURABLE  INTEREST.— Every  inter- 
est in  property,  or  relating  to  it,  or  liability  in  respect  to 
it,  of  such  a  nature  that  a  contemplated  peril  might  directly 
injure  the  insured,  is  an  insurable  interest,  in  the  law  of 
California.  The  contract  of  insurance,  being  one  of  in- 
demnity, the  insured  must  have  such  an  interest  in  the 
property  as  that  its  destruction  will  result  in  pecuniary 
loss  to  him.  But  it  is  not  necessary  he  shall  have  a  title, 
provided  his  interest,  whatever  it  may  be,  is  such  that  it 


186  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

would  be  impaired  or  injured  by  the  destruction  of  the 
property.  Nor  is  it  necessary  that  the  interest  of  the  in- 
sured be  personal ;  for  if  he  has  an  interest  in  the  property 
as  trustee,  agent,  mortgagee,  commission  merchant,  com- 
mon carrier,  warehouseman,  administrator,  pledgee,  lessor 
or  lessee,  consignee,  or  judgment  creditor,  the  courts  have 
held  that  this  is  an  insurable  interest.  And  it  has  been 
held  that  even  one  who  has  no  title,  legal  or  equitable,  in 
the  property,  and  no  present  possession  or  right  of  posses- 
sion, has  an  insurable  interest  if  he  will  derive  benefit  from 
the  continued  existence  of  the  property,  or  will  suflfer  loss 
by  its  destruction. 

Civil  Code,  Section  2546. 

Section  199.— MEASURE  OF  INTEREST  IN  PROP- 
ERTY.— The  measure  of  an  insurable  interest  in  property 
is  the  extent  to  which  the  insured  might  be  damaged  by 
loss  of  or  injury  to  the  property.  Therefore,  under  the 
provisions  of  our  law,  if  the  owner  of  a  building  insures  it 
for  more  than  it  is  worth,  he  will  not  be  entitled  to  the 
full  amount,  merely  because  the  company  has  issued  a 
policy  and  accepted  a  premium  on  a  fictitious  value;  but 
the  amount  the  insurer  will  be  liable  to  pay,  in  all  cases, 
will  be  the  amount,  to  the  extent  of  the  policy,  necessary 
to  reimburse  the  insured  for  the  pecuniary  loss  he  has  sus- 
tained, unless  the  insurer  has  agreed  in  the  policy  that 
in  case  of  loss  the  property  shall  be  valued  at  a  given  sum. 
Where  the  interest  of  the  insured  is  less  than  a  whole 
ownership,  as  where  he  has  an  interest  only  as  mortgagee, 
his  insurable  interest  in  the  property  is  measured  by  the 
amount  of  the  debt,  and  no  more:  and  in  fact,  the  insured 
can  never  be  entitled  to  recover  more  than  his  actual  loss. 
Civil  Code,  Section  2550. 

Section  200.— WHEN  INSURABLE  INTEREST 
MUST  EXIST. — The  law  of  California  provides,  that  the 
interest  insured  must  exist  when  the  insurance  tak^s  effect, 


BUSINESS   CONTRACTS  AND  LEGAli  OBLIGATIONS.  187 

and  when  the  loss  occurs,  but  need  not  exist  between  those 
two  dates.  The  meaning  of  this  is,  that  where  the  policy 
does  not  prohibit  it,  the  insured  may  dispose  of  his  interest 
in  the  insured  property,  after  the  policy  has  been  issued, 
and  if,  before  the  term  of  the  policy  ends,  he  becomes  again 
the  owner  of  his  interest  in  the  property,  and  owns  it  at 
the  time  of  the  loss,  he  may  recover  on  the  policy.  The 
interest  of  the  party  in  the  insurance  is  simply  suspended, 
when  he  has  disposed  of  the  property  without  changing  the 
policy  to  another,  until  the  interest  in  the  property  and  the 
interest  in  the  insurance  are  again  vested  in  himself.  A 
change  of  interest  in  a  thing  insured,  after  the  loss,  does 
not  affect  the  right  of  the  insured  to  collect  the  insurance. 
Where  a  person  holds  a  policy  which  includes  several 
articles  separately  insured,  and  transfers  some  of  the 
articles  only,  his  insurance  upon  the  articles  not  trans- 
ferred is  still  good.  A  policy  is  not  rendered  invalid  by 
the  death  of  the  insured;  for  his  administrator  will  hold 
the  policy  for  the  benefit  of  those  who  succeed  to  his  estate. 
The  transfer  of  interest  by  one  of  several  partners,  joint 
owners,  or  owners  in  common,  who  are  jointly  insured,  to 
the  others,  does  not  avoid  an  insurance,  even  though  it 
has  been  agreed  that  the  insurance  shall  cease  upon  an 
alienation  of  the  thing  insured. 

Civil  Code,  Sections  2552,  2553,  2554,  2555,  2556, 
2557. 

Section   201.— INSURANCE   WITHOUT    INTEREST 

ILLEGAL. — The  sole  object  of  insurance  is  the  indemnity 
of  the  insured,  and  if  he  has  no  insurable  interest  when 
the  policy  takes  effect,  the  policy  is  void ;  and  if  he  has  no 
insurable  interest  when  the  loss  occurs,  he  cannot  collect 
the  insurance. 

Civil  Code,  Section  2551. 

Section  202.— WAGER  POLICIES  VOID.— Every  pol- 
icy executed  by  way  of  gaming  or  wagering  is  void. 
Civil  Code,  Section  2558. 


188  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  203.— DUTY  OF  PARTIES  IN  MAKING  THE 
CONTRACT. — Each  party  to  a  contract  of  fire  insurance, 
if  they  expect  the  policy  to  be  free  from  attack,  must  deal 
fairly  with  one  another,  and  must  not  be  guilty  of  misrep- 
resentation or  concealment  of  material  facts,  upon  enter- 
ing into  the  contract.  Insurance  companies  act  usually,  if 
not  always,  by  agents  sent  out  to  solicit  insurance,  or  by 
local  agents  residing  in  the  locality  where  the  property 
to  be  insured  is  situated.  The  company  is  bound  by  all 
the  acts  of  such  agents  done  within  the  scope  of  their 
authority.  The  insured  may  act  for  himself,  or  through 
a  broker  or  other  agent.  But  however  the  parties  come 
together,  the  law  requires  the  utmost  good  faith  on  the 
part  of  both.  The  law  of  California,  recognizing  this  prin- 
ciple, provides  that  each  party  to  a  contract  of  insurance 
must  communicate  to  the  other  in  good  faith  all  facts 
within  his  knowledge  which  are  or  which  he  believes  to 
be  material  to  the  contract,  and  which  the  other  has  not 
the  means  of  ascertaining;  therefore,  it  is  the  duty  of  the 
company's  agent  to  disclose  fully  to  the  insured  all  the 
conditions  and  requirements  of  the  policy  which  his  com- 
pany proposes  to  issue,  and  it  is  the  duty  of  the  insured 
to  communicate  to  the  agent  all  facts  within  his  knowledge 
respecting  the  situation  or  condition  of  the  property; 
but  neither  party  to  a  contract  of  insurance  is  bound  to 
volunteer  information  of  matters  which  the  other  knows, 
or  which  in  the  exercise  of  ordinary  care  the  other  ought 
to  know,  where  there  is  no  reason  to  suppose  him  ignorant 
of  them;  and  neither  party  is  bound  to  give  information 
to  the  other  of  facts  of  which  the  other  waives  communi- 
cation; and  neither  party  is  bound  to  give  the  other  infor- 
mation of  matters  open  to  the  inspection  equally  of  both; 
except,  that  either  party  must  answer  the  inquiries  of  the 
other,  as  to  any  fact  affecting  the  insurance,  though  it 
would  not  have  been  necessary  to  say  anything  about  it 
if  no  inquiry  had  been  made.  Where  inquiries  are  made 
by    either    party    of    the    other,  he    is    bound    to    answer 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  189 

truthfully  and  in  good  faith.  Both  parties  will  be  responsible 
for  any  false  representations  made  during  the  negotiations, 
and  for  any  false  representation  on  a  material  matter  the 
policy  will  be  rescinded.  The  law  deems  a  representation 
false  when  the  f^cts  fail  to  correspond  with  its  assertions 
or  stipulations. 

Civil  Code,  Sections  2563,  2564,  2566,  2579, 

Section  204.— THE  POLICY  OF  INSURANCE.— The 
written  instrument  in  which  a  contract  of  insurance  is  set 
forth  is  called  the  policy  of  insurance.  The  policy  is  re- 
quired by  the  law  of  California  to  specify,  the  parties  be- 
tween whom  the  contract  is  made,  the  rate  of  premium, 
the  property  insured,  the  interest  of  the  insured  in  the 
property,  if  he  is  not  the  absolute  owner,  the  risks  insured 
against,  and  the  period  during  which  the  insurance  is  to 
continue.  When  an  insurance  is  made  by  an  agent  or 
trustee,  the  fact  that  his  principal  or  beneficiary  is  the  per- 
son really  insured  may  be  indicated  by  describing  him  as 
agent  or  trustee,  or  by  other  general  words  in  the  policy. 
To  render  an  insurance  effected  by  one  partner  or  part 
owner  applicable  to  the  interest  of  his  copartners  or  of 
other  part  owners,  it  is  necessary  that  the  terms  of  the 
policy  should  be  made  to  apply  to  the  joint  or  common 
interest.  When  the  description  of  the  insured  in  a  policy 
is  so  general  that  it  may  comprehend  any  person  or  any 
class  of  persons,  he  only  can  claim  the  benefit  of  the  policy 
who  can  show  that  it  was  intended  to  include  him.  A 
policy  may  be  so  framed  that  it  will  inure  to  the  benefit 
of  whomsoever,  during  the  continuance  of  the  risk,  may 
become  the  owner  of  the  interest  insured.  The  mere  trans- 
fer of  a  thing  insured  does  not  transfer  the  policy,  but 
suspends  it  until  the  same  person  becomes  the  owner  of 
both  the  policy  and  the  thing  insured. 

Civil  Code,  Sections  2587,  2589,  2590,  2591,  2592, 
2593. 


190  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  205.— OPEN   AND   VALUED   POLICIES.— A 

policy  is  either  open  or  valued.  An  open  policy  is  one  in 
which  the  value  of  the  thing  insured  is  not  agreed  upon, 
but  is  left  to  be  ascertained  in  case  of  loss,  A  valued  policy 
is  one  which  expresses  on  its  face  an  a^eement  that  the 
thing  insured  shall  be  valued  at  a  specified  sum. 
Civil  Code,  Sections  2594,  2595,  2596. 

Section  206.— RUNNING  POLICY.— A  running  policy 
is  one  which  contemplates  successive  insurances,  and  which 
provides  that  the  object  of  the  policy  may  be  from  time 
to  time  defined,  especially  as  to  the  subjects  of  insurance, 
by  additional  statements  or  indorsements.  The  general  rule 
is  that  the  property  insured  must  be  specified  in  the  policy. 
But  open  or  running  policies  are  an  exception  to  this  rule. 
They  were  brought  into  use  to  enable  merchants  to  insure 
their  goods  shipped  at  distant  ports,  when  it  is  impossible 
for  them  to  know  the  precise  quantity  or  character  of  the 
goods,  or  the  particular  vessel  in  which  they  are  shipped, 
and  thus  unable  to  describe  accurately  or  particularly  the 
subject  of  insurance.  These  policies  generally,  if  not  uni- 
versally, require  that  the  risk  shall  be  declared  or  reported 
to  the  company  as  soon  as  known  to  the  assured. 
Civil  Code,  Section  2597. 

Section  207.— ACKNOWLEDGMENT  IN  POLICY 
OF  RECEIPT  OF  PREMIUM.— An  acknowledgment  in 
a  policy  of  the  receipt  of  premium  is  conclusive  evidence 
of  its  payment,  so  far  as  to  make  the  policy  binding,  not- 
withstanding any  stipulation  therein  that  it  shall  not  be 
binding  until  the  premium  is  actually  paid. 
Civil  Code,  Section  2598. 

Section  208.— AGREEMENT  NOT  TO  TRANSFER.— 

An  agreement,  made  before  a  loss,  not  to  transfer  the  claim 
of  a  person  insured  against  by  the  insurer,  after  the  loss 
has  happened,  is  void. 

Civil  Code,  Section  2599. 


BUSIKESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  191 

Section  209.— CERTAIN  WARRANTIES.— A  warranty 
is  either  expressed  in  the  policy,  or  implied  from  circum- 
stances. A  statement  in  a  policy,  of  a  matter  relating  to 
the  person  or  thing  insured,  or  to  the  risk,  as  a  fact,  is  an 
express  warranty  of  the  fact.  A  statement  in  a  policy, 
which  imports  that  it  is  intended  to  do  or  not  to  do  a  thing 
which  materially  affects  the  risk,  is  a  warranty  that  such 
act  or  omission  shall  take  place;  as  that  a  watchman  will 
be  kept  on  the  premises,  or  that  a  supply  of  water  will  be 
kept  on  the  building  ready  for  use. 

Civil  Code,  Sections  2607,  2608.. 

Section  210.— WHAT   ACTS   AVOID   POLICY.— The 

violation  of  a  material  warranty,  or  other  material  provision 
of  a  policy,  on  the  part  of  either  party  thereto,  entitles  the 
other  to  rescind.  A  policy  may  declare  that  a  violation  of 
special  provisions  shall  avoid  it,  otherwise  the  breach  of 
an  immaterial  provision  does  not  avoid  the  policy. 
Civil  Code,  Sections  2610,  2611. 

Section    211.— EXONERATION    OF    INSURER.— An 

insurer  is  not  liable  for  a  loss  caused  by  the  wilful  act  of 
the  insured ;  but  the  insurer  is  not  exonerated  by  the  mere 
negligence  of  the  insured,  or  of  his  agents,  or  others. 
Civil  Code,  Section  2629. 

Section  211a.— PROXIMATE  AND  REMOTE  CAUSE 
OF  LOSS. — A  new  law  was  passed  by  the  Legislature  of 
1907,  which  was  intended  to  have  some  bearing  upon  suits 
for  losses  in  the  San  Francisco  fire.  The  language  of  the 
law  is,  not  clear,  and  it  would  probably  be  difficult  for  the 
legislator  who  prepared  it  to  tell  just  what  it  was  intended 
to  mean.     Such  as  it  is,  however,  it  is  quoted  below: — 

"In  an  action  to  recover  upon  a  contract  of  insurance 
wherein  the  defendant  claims  exemption  from  liability  upon 
the  ground  that,  although  the  proximate  cause  of  the  loss 
was  a  peril  insured  against,  the  loss  was  remotely  caused 


192  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

by  or  would  not  have  occurred  but  for  a  peril  excepted  in 
the  contract  of  insurance,  the  defendant  shall  in  his  answer 
set  forth  and  specify  the  peril  which  was  the  proximate 
cause  of  the  loss,  in  what  manner  the  peril  excepted  con- 
tributed to  the  loss  or  itself  caused  the  peril  insured  against, 
and  if  he  claim  that  the  peril  excepted  caused  the  peril 
insured  against,  he  shall  in  his  answer  set  forth  and  specify 
upon  what  premises  or  at  what  place  the  peril  excepted 
caused  the  peril  insured  against. 

"This  Act  shall  apply  to  all  pleadings  filed  after  the 
passage  of  this  Act,  as  well  as  actions  then  pending  as  in 
those  thereafter  begun."    (In  effect  March  21,  1907.) 

Section  212.--NOTICE  OF  LOSS.— In  case  of  loss  by 
fire,  the  insured  must  give  notice  to  the  company  of  the 
loss,  without  unnecessary  delay.  If  the  policy  fix  the  time 
within  which  notice  of  loss  must  be  given  to  the  company, 
the  insured  must  give  notice  within  that  time ;  if  the  policy 
does  not  fix  the  time,  the  insured  must  give  notice  of  the 
loss  within  a  reasonable  time.  The  notice  may  be  given 
to  an  agent  of  the  company,  or  it  may  be  sent  to  the  office 
of  the  company,  and  it  may  be  sent  by  the  most  available 
means,  by  mail,  or  in  person.  If  the  policy  provides  that 
the  notice  must  be  in  writing,  it  must  be  so  given,  but 
verbal  notice  will  be  sufficient  without  such  provision. 
Civil  Code,  Section  2633. 

Section  213.— PRELIMINARY  PROOFS  OF  LOSS.— 

When  preliminary  proofs  of  loss  are  required  by  a  policy, 
the  insured  is  not  bound  to  give  such  proof  as  would  be 
necessary  in  a  court  of  justice;  but  it  is  sufficient  for  him 
to  give  the  best  evidence  which  he  has  in  his  power  at  the 
time.  All  defects  in  a  notice  of  loss,  or  in  preliminary  proof 
of  loss,  which  the  insured  might  remedy,  and  which  the 
insurer  omits  to  specify  to  him  without  unnecessary  delay 
as  grounds  of  objection,  are  waived.  Delay  in  the  pres- 
entation to  an  insurer  of  notice  or  proof  of  loss  is  waived. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  193 

if  caused  by  an  act  of  the  insurer,  or  if  he  omits  to  make 
objection  promptly  and  specifically  upon  that  ground.  If 
a  policy  requires,  by  way  of  preliminary  proof  of  loss,  the 
certificate  or  testimony  of  a  Justice  of  the  Peace,  or  other 
person,  it  is  sufficient  for  the  insured  to  use  reasonable  dili- 
gence to  procure  it,  and  in  case  of  the  refusal  of  such  per- 
son to  give  it,  then  to  furnish  reasonable  evidence  to  the 
insurer  that  such  refusal  was  not  induced  by  any  just 
ground  of  disbelief  in  the  facts  necessary  to  be  certified  to. 
Civil  Code,  Sections  2634,  2635,  2636,  2637. 

Section  214.— DOUBLE  INSURANCE.— A  double  in- 
surance exists  where  the  same  interest  in  property  is  insured 
by  several  insurers  separately.  In  cases  of  double  insur- 
ance, the  several  companies  must  contribute  ratably  toward 
the  loss,  without  regard  to  the  dates  of  the  several  policies. 
Civil  Code,  Section  2642. 

Section  215.— ALTERATION  INCREASING  RISK.— 

An  alteration  in  the  use  or  condition  of  a  thing  insured 
from  that  to  which  it  is  limited  by  the  policy,  made  without 
the  consent  of  the  insurer,  by  mucins  within  the  control  of 
the  insured,  and  increasing  the  risk,  entitles  an  insurer  to 
rescind  a  contract  of  fire  insurance. 
Civil  Code,  Section  2753. 

Section  216.— ALTERATION  WHICH  DOES  NOT 
INCREASE  RISK. — An  alteration  in  the  use  or  condition 
of  a  thing  insured  from  that  to  which  it  is  limited  by  the 
policy,  which  does  not  increase  the  risk,  does  not  affect 
a  contract  of  fire  insurance. 

Civil  Code,  Section  2754. 

Section    217.  —  VERBAL    CONTRACT    TO    ISSUE 

POLICY. — A  verbal  contract  to  issue  a  policy,  made  by 
the  owner  of  the  property  and  the  agent  of  the  company, 
is  a  valid  agreement.  Therefore,  if.  the  owner  of  a  building 
applies  to  an  agent,  or  if  the  agent  solicits  the  insurance. 


194  BUSINESS  LAWS  FOE  BUSINESS  MEN. 

and  a  verbal  agreement  is  made  for  a  consideration  that  a 
policy  will  be  issued  for  a  certain  amount  covering  the 
property,  and  the  company  then  refuses  to  issue  the  policy, 
it  will  be  liable  for  the  loss,  whether  the  policy  is  issued 
or  not.  If  a  fire  occurs  and  destroys  the  property,  the 
owner  can  sue  the  company  for  damages,  for  its  failure  to 
issue  the  policy,  and  recover  his  loss  on  the  property,  not 
exceeding  the  amount  of  insurance  verbally  agreed  upon. 

Section  218.— CERTIFICATE  OF  NOTARY.— Under  a 
provision  of  a  fire  insurance  policy  requiring  that  in  case 
of  loss  by  fire  the  assured  must  obtain  the  certificate  of 
the  Notary  nearest  the  insured  building,  not  concerned  in 
the  loss  as  a  creditor  or  otherwise,  nor  related  to  the  as- 
sured, as  to  the  justice  of  the  claim,  where  it  appears  that 
the  nearest  Notary  refused  to  act,  on  the  ground  that  he 
was  employed  by  the  insurance  company  in  ascertaining 
the  facts  and  taking  affidavits  concerning  the  fire,  the  as- 
sured is  relieved  of  the  necessity  of  obtaining  his  certificate, 
and  need  not  inform  the  company  of  the  reason  for  obtain- 
ing the  certificate  of  another  Notary.  (Decided  by  the 
Supreme  Court  in  case  of  Noone  vs.  Transatlantic  Fire 
Insurance  Co.,  which  decision  is  printed  in  Volume  88  of 
the  California  Reports,  page  152.) 

Section  219.— FALSITY  OF  MATERIAL  REPRESEN- 
TATIONS BY  INSURED.— One  who  makes  an  applica- 
tion for  fire  insurance  must  not  make  false  representations, 
as  to  any  material  fact  upon  which  the  insurance  depends, 
for  if  he  does  the  company  may  cancel  the  policy.  This 
the  company  may  do  by  making  a  tender  of  the  premium 
back  to  the  insured,  and  notifying  him  that  the  policy  is 
canceled  on  account  of  the  false  representation.  And  if 
the  company,  where  a  false  representation  has  been  really 
made,  tenders  the  premium  back  and  gives  the  insured 
notice  of  the  cancellation  of  the  policy,  before  the  com- 
mencement of  a  suit  on  the  policy,  this  will  operate  as  a 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  195 

rescission  of  the  policy  and  will  defeat  the  suit.  As  an 
illustration,  it  may  be  cited,  that  a  condition  in  a  policy  of 
insurance  upon  a  mill,  that  during  such  time  as  the  mill  is 
idle  a  watchman  shall  be  employed  by  the  insured  "to  be 
in  and  about  the  premises  day  and  night,"  is  broken  if 
during  the  time  the  mill  is  idle  but  one  watchman  is  em- 
ployed, who  was  not  instructed  to  watch  the  mill  at  night, 
and  who  slept  every  night  in  a  building  three  or  four  hun- 
dred feet  from  the  mill.  A  man  employed  to  watch  in  the 
daytime,  and  who  is  permitted  to  sleep  at  night,  is  not  a 
watchman  at  night.  And  to  entitle  the  insured  to  recover 
upon  such  a  policy  it  must  be  shown  that  he  has  in  good 
faith  employed  a  watchman  to  perform  the  duties  required 
by  the  terms  of  the  policy.  (Decided  by  the  Supreme  Court 
in  the  case  of  Rankin  vs.  Amazon  Insurance  Co.,  which 
decision  is  printed  in  Volume  89  of  the  California  Reports, 
page  203.) 

Section  220.— STATEMENTS  AS  TO  VALUATIONS. 

— A  provision  in  the  policy  that  the  application  shall  be 
considered  a  warranty,  and  if  the  property  is  overvalued 
in  it,  the  policy  shall  be  void,  applies  only  where  the  state- 
ments as  to  value  are  intentionally  false. 

If  there  is  no  valuation  in  the  policy,  the  measure  of 
indemnity  in  an  insurance  against  fire  is  the  expense  it 
would  be  to  the  insured,  at  the  time  of  the  commencement 
of  the  fire,  to  replace  the  thing  lost  or  injured  in  the  con- 
dition in  which  it  was  at  the  time  of  the  injury. 

Act  of  the  Legislature,  approved  April  15,  1909. 

Section  221.— RIGHTS  OF  MORTGAGEE— EFFECT 
OF  SALE  UNDER  FORECLOSURE.— A  mortgagee  of 
insured  property,  to  whom  the  loss  is  made  payable,  is 
entitled  to  recover  the  loss  to  the  full  extent  of  the  mort- 
gage debt,  although  the  fire  occurs  after  a  foreclosure  sale 
and  purchase  by  the  mortgagee,  but  before  the  time  for 
redemption  has  expired  and  before    the    execution    of    a 


196  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

sheriff's  deed  to  the  mortgagee.  (Decided  by  the  Supreme 
Court  in  the  case  of  National  Bank  vs.  Union  Insurance 
Co.,  which  decision  is  reported  in  Volume  88  of  the  Cali- 
fornia Reports,  page  497.) 

Section  222.— INSURANCE  BY  COMMISSION  MER- 
CHANT—INCORRECT STATEMENT  AS  TO  OWN- 
ERSHIP.— The  Springfield  Fire  and  Marine  Insurance 
Co.  insured  against  loss  by  fire  a  stock  of  goods,  the  prop- 
erty of  a  corporation  in  which  F.  H.  McCormick  and  F.  N. 
Delanoy  were  stockholders;  McCormick  and  Delanoy  held 
the  goods  as  security  for  advances  made  to  the  corporation, 
but  in  the  application  for  the  insurance  they  described  the 
property  as  their  own.  The  policy  referred  to  the  applica- 
tion, and  made  it  a  part  of  the  policy,  and  provided  that  if 
the  insured  were  not  the  sole,  absolute,  and  unconditional 
owners  of  the  property,  and  if  their  interest  was  not  truly 
stated  in  the  policy,  then  the  policy  should  be  void. 
McCormick  and  Delanoy  sued  the  company  for  the  insur- 
ance, but  the  Supreme  Court  decided  that  the  policy  was 
invalid,  because  the  ownership  was  not  truly  stated  in  the 
application.  (Decided  by  the  Supreme  Court  in  case  of 
McCormick  vs.  The  Springfield  Fire  and  Marine  Insurance 
Co.,  which  decision  is  printed  in  Volume  66  of  the  California 
Reports,  page  361.) 

Section   223.— RIGHT   OF  ARBITRATION.— When   a 

policy  of  fire  insurance  provides  for  arbitration  upon  the 
written  request  of  either  party,  in  case  of  difference  touch- 
ing any  loss  or  damage  after  the. proof,  the  arbitration  is 
not  a  condition  precedent  to  the  right  of  action,  unless 
demanded  after  proof  of  loss ;  and  if  no  demand  for  arbitra- 
tion is  made  within  a  reasonable  time,  or  until  after  a  right 
of  action  has  become  complete  by  the  lapse  of  sixty  days 
from  the  proofs  of  loss,  the  right  to  demand  arbitration  is 
waived.  No  right  of  arbitration  exists  under  a  fire  in- 
surance  policy   when   the   stipulation   for  arbitration   does 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  197 

not  definitely  fix  the  number  of  arbitrators  nor  provide  a 
mode  of  selection.  (Decided  by  the  Supreme  Court  in  case 
of  Case  vs.  Manufacturers'  Insurance  Co.,  which  decision 
is  printed  in  Volume  82  of  the  California  Reports,  page  263.) 

Section  224.— WAIVER  OF  PROOF  OF  LOSS  BY 
ARBITRATION. — A  provision  in  a  policy  of  fire  insur- 
ance, requiring  the  assured  in  case  of  loss  to  forthwith 
give  notice  thereof  to  the  insurer,  and  produce  a  certificate 
of  preliminary  proof  from  a  notary  or  magistrate,  is  waived, 
if  the  insurer,  after  learning  of  the  loss,  makes  no  objec- 
tions to  the  absence  of  the  notice  and  preliminary  proof, 
but  joins  in  proceedings  for  determining  the  loss  by  arbi- 
tration, which  proceedings  are  required  by  the  policy  to 
be  taken  after  proof  of  the  loss  has  been  received  in  due 
form.  In  such  a  case,  the  company  cannot  deny  the  author- 
ity of  its  agents  to  waive  the  provision  of  the  policy 
as  to  notice  and  preliminary  proof,  when  it  adopts  their 
acts  in  that  regard,  and  relies  on  the  award  as  a  defense 
to  an  action  to  recover  for  the  loss.  (Decided  by  the 
Supreme  Court  in  the  case  of  Carroll  vs.  Girard  Fire  Insur- 
ance Co.,  which  decision  is  printed  in  Volume  72  of  the 
California  Reports,  page  297.) 

Section  225.— WAIVER  OF  CONDITION  AS  TO 
PREPAYMENT  OF  PREMIUM.— An  express  provision 
in  a  policy  of  insurance  that  the  company  shall  not  be 
liable  on  the  policy  until  the  premium  is  actually  paid  is 
waived  by  the  unconditional  delivery  of  the  policy  to  the 
assured,  as  a  completed  and  executed  contract,  under  an 
agreement  that  a  credit  shall  be  given  for  the  premium, 
and  the  company  is  liable  for  a  loss  which  may  occur 
during  the  period  of  credit.  If  an  insurance  policy  con- 
tains a  formal  receipt  of  premium,  its  unconditional  delivery 
is  conclusive  evidence  of  payment,  so  far  as  to  estop  the 
company  issuing  it  from  denying  the  validity  of  the  policy, 
notwithstanding  a  declaration  in  the  policy  that  it  shall  not 


198  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

be  binding  until  the  premium  is  actually  paid.  (Decided 
by  the  Supreme  Court  in  the  case  of  Farnum  vs.  Phoenix 
Insurance  Co.,  which  decision  is  printed  in  Volume  83  of 
the  California  Reports,  page  246.) 

Section  226.— REMEDY  FOR  UNAUTHORIZED 
TERM  OF  CREDIT.— The  giving  of  any  credit  by  author- 
ity of  the  insurance  company  being  a  waiver  of  actual 
payment  as  a  condition  precedent  to  liability,  the  only  rem- 
edy for  an  unauthorized  term  of  credit  is  for  the  company 
to  personally  notify  the  assured,  who  is  obliged  to  pay 
the  premium,  that  he  must  pay  at  the  end  of  the  author- 
ized term  of  credit,  or  that  the  policy  will  be  canceled 
for  non-payment  of  premium.  If  the  notice  is  sent  by 
mail,  and  is  not  received,  the  cancellation  for  non-payment 
of  premium  is  ineffective. 

Section  227.— INSURANCE  OF  UNOCCUPIED 
BUILDING. — Insurance  companies  may  by  their  acts  and 
conduct  be  estopped  from  availing  themselves  of  a  defense 
which  they  might  otherwise  interpose  to  an  action  upon 
their  policies,  or  may  waive  their  right  to  avail  themselves 
of  such  defense.  If  a  building  is  insured  against  loss  by 
fire  under  a  policy  containing  a  proviso  that  it  shall  be  or 
become  void  in  case  the  building  is  or  shall  become  vacant 
or  unoccupied,  when  it  was  well  known  to  the  company's 
agents  at  the  date  of  the  policy  and  subsequently  that  it 
was  and  remained  unoccupied,  the  company  will  be  pre- 
sumed to  have  waived  the  clause  as  to  occupancy.  (De- 
cided by  the  Supreme  Court  in  case  of  West  Coast  Lumber 
Co.  vs.  State  Investment  and  Insurance  Co.,  which  decision 
is  printed  in  Volume  98  of  the  California  Reports,  page  502.) 

Section  228.  —  LIABILITY  OF  INSURANCE  COM- 
PANY FOR  FIRES  CAUSED  BY  EARTHQUAKES.— 

The  property  of  the  insured  was  consumed  in  a  general 
conflagration  in  San  Francisco  which  had  its  origin  in  the 
earthquake  of  1906.    The  fire  was  started  at  several  points 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  199 

in  the  city  and  spread  to  the  insured  property.  The  policy 
provided  that  the  company  should  not  be  liable  for  loss 
caused  directly  or  indirectly  by  invasion,  or  for  loss  or  dam- 
age occasioned  by  or  through  any  earthquakes.  In  Wil- 
liamsburgh  City  Fire  Ins.  Co.  v.  Willard,  volume  164, 
Federal  Reporter,  page  404,  it  w^as  decided  by  the  Circuit 
Court  of  Appeals  that  although  the  words  "directly  or  in- 
directly" applied  to  invasions,  they  could  not  be  made  to 
embrace  earthquakes ;  "occasioned"  was  equivalent  to 
"caused" ;  and  a  loss  indirectly  caused  by  the  progress  of  a 
fire  from  a  distance,  originally  started  by  an  earthquake, 
is  a  loss  which  the  insurance  company  must  pay.  The 
Supreme  Court  of  the  United  States  affirmed  the  decision 
of  the  Circuit  Court  of  Appeals. 

Section  229.— CONDITION  AS  TO  CHANGE  OC- 
CURRING IN  BUILDING.— If  a  policy  of  insurance 
against  fire  contains  a  clause,  that  if  the  building  shall 
fall  except  by  fire,  the  insurance  shall  immediately  cease,  and 
the  walls  of  the  building  are  of  brick,  and  a  portion  falls, 
leaving  more  than  three-fourths  standing,  the  building  is 
not  a  fallen  building  within  the  condition  of  the  policy,  and 
if  destroyed  by  fire  in  that  condition  the  insurance  company 
is  liable  for  the  loss.  A  clause  in  an  insurance  policy  that 
it  shall  be  void  if  any  change  occurs  in  the  building  by 
which  the  risk  is  increased  without  the  consent  of  the  com- 
pany, has  reference  only  to  a  change  produced  by  the  act 
of  the  insured.  It  does  not  mean  a  change  occasioned  by 
accident,  or  by  any  cause  over  which  the  insured  had  no 
control.  (Decided  by  the  Supreme  Court  in  the  case  of 
Breuner  vs.  Liverpool  and  London  and  Globe  Insurance 
Co.,  which  decision  is  printed  in  Volume  51  of  the  California 
Reports,  page  101.) 

Section  230.— RULES  FOR  INTERPRETING  CON- 
TRACT OF  INSURANCE.— A  contract  of  insurance  must 
be  interpreted  by  the  same  rules  as  apply  to  any  other  con- 
tract.    It  must  be  so  interpreted  as  to  give  effect  to  the 


200  BUSINESS   LAWS   FOK   BUSINESS   MEN. 

mutual  intention  of  the  parties  as  it  existed  at  the  time  of 
contracting,  so  far  as  that  intention  can  be  ascertained.  If 
the  contract  for  insurance  is  in  writing,  as  where  an  appli- 
cation has  been  signed  and  a  policy  issued,  the  intention 
of  the  parties  is  to  be  ascertained  from  the  application 
and  the  policy  alone,  if  possible.  The  whole  contract  is 
to  be  taken  together.  When  it  is  partly  written  and 
partly  printed,  the  written  parts  control  the  printed  parts, 
and,  if  there  is  any  conflict  between  the  two,  the  printed 
part  must  be  disregarded.  The  contract  may  be  explained 
by  reference  to  the  circumstances  under  which  it  was  made, 
and  in  cases  of  uncertainty  it  is  to  be  interpreted  most 
strongly  against  the  party  who  caused  the  uncertainty  to 
exist.  Where  the  policy  provides  for  the  forfeiture  of  the 
contract,  upon  failure  to  perform  conditions  named,  the 
policy  is  to  be  interpreted  most  strongly  in  favor  of  the 
insured.  The  law  does  not  favor  forfeitures,  and  the  in- 
surance company  must  make  out  a  very  strong  case  show- 
ing that  a  condition  has  not  been  complied  with,  before  a 
court  will  declare  the  policy  forfeited.  The  suit  of  Yoch 
vs.  Home  Mutual  Insurance  Company,  decided  by  our  Su- 
preme Court  in  1896,  illustrates  the  rules  which  are  to  be 
applied  to  the  interpretation  of  contracts  of  insurance, 
where  the  effort  is  to  ascertain  the  intention  of  the  parties 
at  the  time  of  contracting.  The  policy  contained  a  printed 
condition  that,  unless  otherwise  provided  by  agreement 
indorsed  thereon,  it  should  be  void  if  (any  usage  of  trade 
to  the  contrary)  gasoline  was  kept  on  the  premises.  Testi- 
mony was  given  at  the  trial  of  the  case  tending  to  show  that 
gasoline  is  one  of  the  articles  of  merchandise  usually  kept 
in  country  stores,  but  that  it  is  customary  to  keep  it  in  a 
room  or  building  by  itself.  It  was  also  shown  that,  during 
the  month  prior  to  the  fire,  the  insured  would,  in  the  day- 
time, bring  small  quantities  of  gasoline — one  or  two  cans — 
from  a  building  on  another  lot,  which  was  used  for  storing 
it,  into  a  room  within  the  insured  building  and  adjacent  to 
the   store,   for  the   purpose   of  selling   it   at    retail   to   her 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS,  201 

customers.  The  Supreme  Court  decided  the  case  against  the 
insurance  company,  and  said :  "It  must  be  held  that  it  was 
the  intention  of  the  defendant  to  insure  gasoline,  if  it  was 
an  article  usually  kept  in  the  country  stores,  and  that,  if 
such  was  its  intention,  it  was  no  violation  of  the  policy  for 
the  insured  to  keep  gasoline  upon  the  premises  as  a  part 
of  the  stock  of  merchandise.  When  the  defendant  agreed 
to  insure  a  stock  of  merchandise  'such  as  is  usually  kept 
in  country  stores,'  it  must  be  presumed  to  have  known  the 
character  of  the  merchandise  which  is  usually  kept  in  coun- 
try stores,  and  that  gasoline  is  one  of  these  articles,  and, 
consequently,  that  the  policy  covered  all  such  merchandise. 
When  it"  was  shown  that  gasoline  is  one  of  the  articles 
which  is  usually  kept  in  country  stores,  the  court  correctly 
held  that  it  was  a  part  of  the  subject  of  the  insurance,  and 
that  the  insured  did  not  violate  the  policy  by  keeping  it 
in  stock.  The  defendant,  when  it  issued  the  policy  in  ques- 
tion, knew  the  character  of  country  stores,  and  that  Mrs. 
Brooks  kept  for  the  purpose  of  retailing  to  her  customers 
all  of  the  articles  kept  by  her,  and  that  the  gasoline  which 
she  kept  was  to  be  disposed  of  by  retail  in  the  same  way 
as  the  other  portion  of  her  stock.  To  give  to  the  policy 
the  construction  now  claimed  by  the  defendant  would  be 
to  hold  that,  although  it  agreed  with  her  to  insure  all  the 
stock  she  usually  kept  in  her  store,  yet,  if  she  continued  to 
keep  that  stock,  she  forfeited  all  rights  under  the  policy. 
The  clause  in  the  policy  above  quoted,  and  which  is  relied 
on  by  the  appellant,  cannot  be  construed  as  having  this 
effect.  The  qualification  therein  which  excepts  the  policy 
from  becoming  void,  viz.,  'unless  otherwise  provided  by 
agreement  indorsed  thereon,'  is  found  in  the  policy  itself. 
The  subject-matter  of  the  risk — the  stock  of  merchandise 
'such  as  is  usually  kept  in  country  stores' — was  written 
in  the  policy  by  the  insurer;  and,  as  the  defendant  must 
be  deemed  to  have  intended  thereby  to  insure  all  such 
articles  as  are  usually  kept  in  a  country  store,  it  must  be 
held  that  this  was  an  'agreement  indorsed'  upon  the  policy, 


202  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

which  removed  the  exemption  from  liability  that  would 
otherwise  have  existed.  If  there  be  any  repugnance  be- 
tween the  written  phrase,  'such  as  is  usually  kept  in  coun- 
try stores,'  and  the  printed  clause,  'any  usage  or  custom 
of  trade  or  manufacture  to  the  contrary  notwithstanding,' 
the  former  controls  the  latter,  as  being  the  more  deliberate 
expression  of  the  contracting  parties."  (Decided  by  the 
Supreme  Court  in  the  case  of  Yoch  vs.  Home  Mutual 
Insurance  Co.,  which  decision  is  printed  in  Volume  107  of 
the  California  Reports,  page  327.) 

Section  231.— TIME  WHEN  POLICY  TAKES  EF- 
FECT.— The  general  rule  is  that  a  policy,  if  delivered, 
takes  effect  from  its  date,  unless  it  be  otherwise  stated  in 
the  policy,  or  unless  there  is  evidence  of  a  contrary  intent. 
If  the  premium  be  paid,  and  the  policy  be  not  delivered  till 
afterward,  the  policy  yet  takes  effect  as  of  its  date,  even 
though  a  loss  intervenes.  The  circumstances  and  the  in- 
tent of  the  parties  are  to  control.  Where  the  exact  time 
of  the  commencement  and  termination  of  the  risk  are  speci- 
fied in  the  policy,  or,  if  no  policy  has  been  written,  in  the 
contract,  such  specification  governs  in  all  cases ;  where  no 
time  has  been  expressly  indicated,  the  circumstances  of  the 
case  will  be  considered  for  the  purpose  of  determining  it; 
if  there  are  no  circumstances  indicating  the  intention  of 
the  parties,  and  no  time  is  specified  in  the  contract,  the 
risk  will  be  deemed  to  have  commenced  at  the  date  of  the 
contract.  In  the  case  last  mentioned,  if,  before  the  contract 
of  insurance  is  made,  the  property  has  ceased  to  exist, 
although  unknown  to  the  parties,  the  risk  never  attaches. 

Section  232.— CONTRACT  OF  REINSURANCE— EF- 
FECT OF  PRIOR  LOSS. — Where  an  insurance  company, 
which  has  insured  the  property  of  a  lumber  company  against 
loss  by  fire,  contracts  for  reinsurance  by  way  of  partial 
indemnity  with  another  insurance  company,  in  the  absence 
of  any  circumstances  indicating  the   mutual   intention  of 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  203 

the  parties  to  give  to  the  contract  of  reinsurance  a  retro- 
spective effect,  the  company  agreeing  to  insure  is  not  liable 
if  the  property  insured  had  been  destroyed  by  fire  prior 
to  the  agreement,  though  at  the  time  of  the  application  and 
agreement  neither  of  the  insurance  companies  knew  of  the 
prior  destruction  of  the  property.  (Decided  by  the  Su- 
preme Court  in  the  case  of  Union  Insurance  Company  vs. 
American  Fire  Insurance  Company,  which  decision  is 
printed  in  Volume  107  of  the  California  Reports,  page  327.) 

Section  233.— WARRANTIES.— Warranties,  in  insur- 
ance, are  distinguished  into  two  kinds :  Affirmative,  or 
those  which  allege  the  existence  at  the  time  of  the  insur- 
ance of  a  particular  fact,  and  avoid  the  contract  if  the 
allegation  be  untrue;  and  promissory,  or  those  which  re- 
quire that  something  shall  be  done  or  omitted  after  the 
insurance  takes  effect  and  during  its  continuance,  the 
doing  or  omission  of  which  will  avoid  the  contract.  An 
express  warranty  is  a  stipulation  inserted  in  writing  on  the 
face  of  the  policy,  on  the  literal  truth  or  fulfilment  of  which 
the  validity  of  the  entire  contract  depends.  By  a  warranty 
the  insured  stipulates  for  the  absolute  truth  of  the  state- 
ment made,  and  the  strict  compliance  with  some  promised 
line  of  conduct,  upon  penalty  of  forfeiture  for  non-compli- 
ance with  the  warranty.  A  warranty  must  be  strictly 
complied  with.  Whether  the  fact  stated  or  the  act  stipu- 
lated for  be  material  to  the  risk  or  not  is  of  no  conse- 
quence, the  contract  being  that  the  matter  is  as  represented, 
or  shall  be  as  promised;  and  unless  it  prove  so,  whether 
from  fraud,  mistake,  negligence,  or  other  cause,  not  pro- 
ceeding from  the  insurance  company,  and  not  caused  by 
the  intervention  of  the  law  or  the  act  of  God,  the  insured 
can  have  no  claim.  One  of  the  very  objects  of  the  war- 
ranty is  to  preclude  all  controversy  about  whether  the 
statement  was  material  or  not.  The  only  question  in  such 
cases  is,  Has  the  warranty  been  kept?  If  the  warranty  be 
a    statement    of    facts,    it    must    be    literally    true;    if    a 


204  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

Stipulation  that  a  certain  act  shall  or  shall  not  be  done, 
it  must  be  literally  performed.  Illustrating  the  law,  it 
may  be  said,  that  if  a  house  be  insured  against  fire,  and 
the  language  of  the  policy  is,  "Warranted,  during  the  policy, 
to  be  covered  with  thatch,"  the  insurance  company  will 
be  discharged  from  liability  if  during  the  insurance  the 
house  should  be  covered  with  wood  or  metal,  although  the 
risk  is  diminished ;  for  a  warranty  excludes  all  argument 
in  regard  to  its  reasonableness,  or  the  probable  intent  of 
the  parties.  Parties  may  contract  as  they  please.  When 
a  warranty  is  adopted  by  them  in  their  contract,  the  courts 
will  not  inquire  as  to  its  wisdom  or  folly,  but  must  exact 
its  observance  as  agreed  to.  The  Supreme  Court  of  Cali- 
fornia construed  a  "watchman  clause"  in  a  policy  issued 
by  the  Scottish  Union  and  National  Insurance  Co.,  which 
read :  "Warranted  by  the  insured  that  during  such  times 
as  the  within  buildings  or  works  are  idle  or  not  in  opera- 
tion, whether  closed  for  repairs  or  during  the  absence  of 
workmen,  or  otherwise  (except  as  otherwise  herein  stated), 
one  or  more  watchmen  shall  be  on  duty  constantly,  day 
and  night,  in  and  immediately  about  said  buildings  or 
works,  or  this  policy  shall  be  null  and  void."  The  insur- 
ance was  on  a  sawmill,  which  was  destroyed  by  fire.  The 
watchman  of  the  insured  worked  about  the  mill  during 
the  day,  and  slept  at  night  in  a  house  about  350  yards  dis- 
tant, and  visited  the  buildings  several  times  during  the 
night.  The  Supreme  Court  held  that  this  was  not  a  suffi- 
cient compliance  with  the  warranty  in  the  policy  that  a 
watchman  should  be  kept  on  duty  "constantly  day  and 
night  in  and  immediately  about"  the  insured  buildings. 
There  was  also  a  controversy  in  the  case  as  to  whether 
the  mill  was  "shut  down,"  within  the  meaning  of  the  war- 
ranty in  the  policy,  and  the  Supreme  Court  held  that  a 
sawmill  which  had  stopped  running  for  the  winter  is  shut 
down,  within  the  meaning  of  such  term  in  a  policy,  though 
men  are  employed  about  the  premises  shipping  lumber, 
and  though  the  machinery  has  not  been  dismantled  and 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  205 

put  in  shape  for  the  winter.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  McKenzie  vs.  Scottish 
Union  and  National  Insurance  Co.,  which  decision  is  printed 
in  Volume  112  of  the  California  Reports,  page  548.) 

Section  234.— PROVISION  AS  TO  BRINGING  SUIT. 
— The  policies  of  very  many  insurance  companies  have 
provisions  similar  to  the  following.  "No  suit  or  action  on 
this  policy  for  the  recovery  of  any  claim  shall  be  sustain- 
able in  any  court  of  law  or  equity  until  after  a  full  compli- 
ance by  the  insured  with  all  the  requirements  of  this  policy, 
nor  unless  commenced  within  twelve  months  next  after 
the  fire."  And,  also,  that  "proof  of  loss  shall  be  made  to 
the  company  within  sixty  days  after  the  fire."  Where  a 
policy  contains  these  provisions,  a  suit  on  the  policy  can- 
not be  maintained  if  the  proofs  of  loss  were  made  after 
sixty  days,  and  there  is  no  evidence  of  a  waiver  by  the 
company  of  the  condition. 

Section  235.— PROOFS  OF  LOSS  TO  REINSURING 
COMPANY. — Where  the  risks  of  a  fire  insurance  company 
are  reinsured  in  another  company,  under  a  contract  whereby 
the  latter  assumes  the  management  and  control  of  the 
business  of  the  original  insurer,  and  agrees  to  make  adjust- 
ment and  prompt  payment  of  its  losses,  proofs  of  loss  under 
a.  policy  issued  by  the  original  insurer  may  be  made  to 
the  reinsuring  company.  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  Whitney  vs.  American  Insur- 
ance Co.,  which  decision  is  printed  in  Volume  128  of  the 
California  Reports,  page  121.) 

Section  236.— LIABILITY  OF  HEIR  FOR  PREMIUM. 

— A  policy  procured  by  an  heir,  "on  the  estate"  of  de- 
ceased, protects  the  interest  of  the  heir  in  the  property, 
though  the  administrator  of  the  estate  repudiates  the  con- 
tract and  has  nothing  in  fact  to  do  with  it.  Having  pro- 
cured the  policy,  the  heir  is  liable  for  the  premiums,  and 


206  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

will  be  compelled  to  pay  them,  no  matter  what  action  the 
administrator  may  take  with  regard  to  them,  (Decided 
by  the  Supreme  Court  of  California  in  the  case  of  Phoenix 
Insurance  Co.  vs.  Hancock,  which  decision  is  printed  in 
Volume  123  of  the  California  Reports,  page  222.) 

Section  237.— INSURANCE  ON  HARVESTER 
WHILE  IN  USE. — A  policy  of  insurance  on  a  harvester 
"while  in  use"  does  not  cover  a  loss  occurring  while  it 
is  stored  in  a  shed,  and  is  not  being  actually  used  for  har- 
vesting purposes.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Slinkard  vs.  Manchester  Fire 
Assurance  Co.,  which  decision  is  printed  in  Volume  122 
of  the  California  Reports,  page  595.) 

Section  238.— LIABILITY  OF  COMPANY  ON  POL- 
ICY WRITTEN  BUT  NOT  DELIVERED  UNTIL 
AFTER  FIRE. — A  liability  may  attach  to  an  insurance 
company,  when  the  policy  has  been  written  but  not  deliv- 
ered until  after  the  fire.  If  the  policy  is  the  memorial  of 
a  contract,  which  in  its  essentials  has  been  agreed  upon 
verbally  before  the  fire,  and  which  the  parties  intended 
should  take  effect  according  to  its  terms,  the  fact  that  the 
policy  was  not  delivered  to  the  insured  until  after  the  fire 
will  make  no  diilerence  in  the  company's  liability;  and  if 
the  terms  of  the  contract  to  insure,  as  verbally  entered 
into,  and  afterwards  embraced  in  the  undelivered  policy, 
are  clearly  shown,  the  company  would  be  liable  without 
any  delivery  of  the  policy  at  all.  If,  however,  there  has 
not  been  any  verbal  agreement,  before  the  fire,  that  the 
company  should  insure  the  building  and  issue  its  policy 
accordingly,  then  delivery  of  the  policy  after  the  building 
has  been  destroyed,  to  the  knowledge  of  the  parties,  will 
not  give  to  the  policy  a  binding  effect.  It  is  therefore 
in  all  such  cases  a  very  important  question,  whether  the 
insurance  company  considered  or  admitted  at  any  time 
that  the  contract  was  complete,  and  the  risk  had  attached ; 
and  in  this  connection,  the  courts  will  always  consider  as 


BUSINESS  CONTBACTS  AND  LEGAL  OBLIGATIONS.  207 

Strong  evidence  in  favor  of  the  insured  the  declarations 
and  admissions  of  the  agents  of  the  insurance  company, 
while  engaged  in  the  transaction  with  the  insured,  and  up 
to  the  time  the  policy  is  delivered.  Such  statements  and 
admissions  of  the  agents,  to  bind  the  company,  must  be 
made  at  the  very  time  of  the  negotiations  and  transactions 
for  the  insurance,  and  while  acting  in  the  business  with 
the  insured.  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Crawford  vs.  Transatlantic  Fire  Insurance 
Co.,  which  decision  is  printed  in  Volume  25  of  the  California 
Reports,  page  609.) 

!/ 

Section  238a.— STANDARD  FORM  OF  FIRE  INSUR- 
ANCE POLICY.— The  Legislature  of  1909  passed  a  law 
adopting  a  standard  form  of  fire  insurance  policy  for  the 
State  of  California.  The  following  form  was  adopted,  and 
must  be  uniformly  used  by  all  insurance  companies  after 
August  1st,  1909: 

CALIFORNIA    STANDARD     FORM     FIRE    INSUR- 
ANCE POLICY. 

No Amount,  $ 

Rate 

No  other  insurance  permitted 
except  by  agreement  endorsed  hereon  or  added  hereto. 
(Here  insert  name  of  company,  and  place  of  its  main  office 

in  California,  and  name  of  State  or  country  under  which 

incorporated  or  organized.) 

IN  CONSIDERATION  of  the  stipulations  herein  named 

and  of dollars  premium  does  insure 

for  the  term  of from  the day  of 

19 .... ,  at  noon,  to  the day  of 19 ,  at 

noon,  against  all  loss  or  damage  by  fire,  except  as  herein- 
after provided. 

To  an  amount  not  exceeding dollars  to  the 

following  described  property  while  located  and  contained  as 
described  herein,  and  not  elsewhere,  to  wit : 

The  company  will  not  be  liable  beyond  the  actual  cash 
value  of  the  interest  of  the  insured  in  the  property  at  the 


208  BUSINESS  LAWS  FOR  BUSINESS   MEN. 


time  of  loss  or  damage  nor  exceeding  what  it  would  then 
cost  the  insured  to  repair  or  replace  the  same  with  material 
of  like  kind  and  quality;  said  cash  value  to  be  estimated 
without  allowance  for  any  increased  cost  of  repair  or  recon- 
struction by  reason  of  any  ordinance  or  law  regulating 
repair  or  construction  of  buildings,  and  without  compensa- 
tion for  loss  resulting  from  interruption  of  business  or 
manufacture. 

This  policy  is  made  and  accepted  subject  to  the  foregoing 
stipulations  and  conditions  and  those  hereinafter  stated, 
which  are  hereby  specially  referred  to,  and  made  part  of 
this  policy,  together  with  such  other  provisons,  agreements, 
or  conditions  as  may  be  endorsed  hereon  or  added  hereto, 
and  no  officer,  agent,  or  other  representative  of  this  com- 
pany shall  have  power  to  waive  any  provision  or  condition 
of  this  policy  except  by  writing  endorsed  hereon  or  added 
hereto,  and  no  person,  unless  duly  authorized  in  writing, 
shall  be  deemed  the  agent  of  this  company. 

This  policy  shall  not  be  valid  until  countersigned  by  the 
duly  authorized  agent  of  the  company,  at 

In  Witness  Whereof,  this  company  has  executed  and 
attested  these  presents  (here  insert  name  of  company). 

By..... 

Countersigned  at thi^ day  of 19 . . . 

Agent, 

Stipulations  and  Conditions  Specially  Referred  to. 

Property  Not  Covered,  (a)  This  company  shall  not  be 
liable  for  loss  to  accounts,  bills,  currency,  evidences  of  debt 
or  ownership  or  other  documents,  money,  notes  or  secur- 
ities ;  nor,  (b)  unless  liability  is  specifically  assumed  hereon, 
for  loss  to  bullion,  casts,  curiosities,  drawings,  dies,  jewels, 
manuscripts,  medals,  models,  patterns,  pictures,  scientific 
apparatus,  business  or  store  or  office  furniture  or  fixtures, 
sculptures,  frescoes,  decorations,  or  property  held  on  stor- 
age or  for  repair. 

Hazards  Not  Covered.  This  company  will  not  be  liable 
for  loss  by  (a)  theft ;  or  (b)  by  neglect  of  the  insured  to 
use  all  reasonable  means  to  save  and  preserve  the  property  , 
at  and  after  a  fire,  or  when  the  property  is  endangered  by 
fire ;  or  (c)  (unless  fire  ensues,  and  in  that  event  for  the 
damage  by  fire  only)  by  explosion  of  any  kind  or  lightning ; 
or  (d)  by  invasion,  insurrection,  riot,  civil  war,  or  commotion, 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  209 

or  (except  as  hereinafter  provided)  by  military  or 
usurped  power,  or  order  of  any  civil  authority,  but  the 
company  will  be  liable  (unless  otherwise  provided  by  en- 
dorsement hereon  or  added  hereto)  if  the  property  is  lost 
or  damaged,  by  fire  or  otherwise,  by  civil  authority  or  mili- 
tary or  usurped  power  exercised  to  prevent  the  spread  of 
fire  not  originating  from  a  cause  excepted  hereunder  and 
which  fire  otherwise  probably  would  have  caused  the  loss 
of  or  damage  to  the  insured  property. 

Matters  Avoiding  Policy,  This  entire  policy  shall  be 
void,  (a)  if  the  insured  has  concealed  or  misrepresented  any 
material  fact  or  circumstances  concerning  this  insurance 
or  the  subject  thereof;  or  (b)  in  case  of  any  fraud  or  false 
swearing  by  the  insured  touching  any  matter  relating  to 
this  insurance  or  the  subject  thereof,  whether  before  or 
after  a  loss. 

Unless  otherwise  provided  by  agreement  endorsed  hereon 
or  added  hereto,  this  entire  policy  shall  be  void,  (a)  if  the 
insured  now  has  or  shall  procure  any  other  insurance, 
whether  valid  or  not,  on  property  covered  in  whole  or  in 
part  by  this  policy,  or  (b)  if  the  interest  of  the  insured  be 
other  than  unconditional  and  sole  ownership,  or  (c)  if  the 
subject  of  insurance  be  a  building  on  ground  not  owned  by 
the  insured  in  fee  simple,  or  (d)  if  with  the  knowledge  of 
the  insured  foreclosure  proceedings  be  commenced  or  notice 
given  of  sale  of  any  property  covered  by  this  policy  by  vir- 
tue of  any  mortgage  or  trust  deed,  or  (e)  if  this  policy  be 
assigned  before  a  loss. 

Matters  Suspending  Insurance.  Unless  otherwise  pro- 
vided by  agreement  endorsed  hereon  or  added  hereto  this 
company  shall  not  be  liable  for  loss  or  damage  occurring 
(a)  while  the  hazard  be  materially  increased  by  any  means 
within  the  control  of  the  insured ;  or  (b)  if  the  subject  of 
insurance  be  a  manufacturing  establishment,  while  it  is 
operated  in  whole  or  in  part  at  night  later  than  ten  o'clock, 
or  while  it  ceases  to  be  operated  beyond  the  period  of  ten 
consecutive  days ;  or  (c)  while  mechanics  or  artisans  are 
employed  in  building  or  altering  or  repairing  the  described 
premises  for  more  than  fifteen  days  at  any  one  time ;  or  (d) 
while  illuminating  gas  or  vapor  be  generated  in  the  de- 
scribed building  (or  adjacent  thereto)  for  use  therein ;,  or 
fe)  while  there  be  kept,  used  or  allowed  on  the  described 
premises  (any  usage  or  custom  of  trade  or  manufacture  to 
the  contrary  notwithstanding)  calcium  carbide,  phosphorus, 


210  BXJSINESS  LAWS  FOE  BUSINESS   MEIN. 

dynamite,  nitroglycerine,  fireworks,  or  other  explosives; 
or  exceeding  one  quart  each  of  benzine,  gasoline,  naphtha 
or  ether;  or  more  than  twenty-five  pounds  of  gunpowder; 
or  (f)  while  a  building  herein  described  whether  intended 
for  occupation  by  owner  or  tenant  is  vacant  or  unoccupied 
beyond  the  period  of  ten  (10)  consecutive  days;  (g)  while 
the  interest  in  title  to  or  possession  of  the  subject  of  insur- 
ance is  changed  excepting: — (1)  by  the  death  of  the  in- 
sured ;  (2)  a  change  of  occupancy  of  building  without  mate- 
rial increase  of  hazard;  and  (3)  transfer  by  one  or  more 
several  co-partners  or  co-owners  to  the  others. 

Such  suspension  shall  not  extend  the  term  of  this  policy 
nor  create  any  right  for  refund  of  the  whole  or  any  portion 
of  premium,  nor  affect  the  respective  rights  of  cancellation. 

Chattel  Mortgage.  Unless  otherwise  provided  by  agree- 
ment in  writing  endorsed  hereon  or  added  hereto,  this 
company  shall  not  be  liable  for  loss  or  damage  to  any  prop- 
erty insured  hereunder  while  encumbered  by  a  chattel  mort- 
gage, but  the  liability  of  the  company  upon  other  property 
hereby  insured  shall  not  be  afifected  by  such  chattel  mort- 
gage. 

Fallen  Building  Clause.  Unless  otherwise  provided  by 
agreement  endorsed  hereon  or  added  hereto,  if  a  building 
or  any  material  part  thereof  fall,  except  as  the  result  of  fire, 
all  insurance  by  this  policy  on  such  building  or  its  contents 
shall  immediately  cease. 

Removal  when  Endangered  by  Fire.  Should  any  of  said 
property  be  necessarily  removed  because  of  danger  from 
fire,  and  there  is  no  other  insurance  thereon,  that  part  of  this 
policy  in  excess  of  the  value  of  the  insured  property  remain- 
ing in  the  original  location,  or,  if  there  is  other  insurance 
thereon,  that  part  of  this  policy  in  excess  of  its  proportion 
of  the  value  of  the  insured  property  remaining  in  the  orig- 
inal location,  shall,  for  the  ensuing  five  days  only,  cover 
said  removed  property  in  its  new  location  or  locations. 

Cancellation.  This  policy  shall  be  cancelled  at  any  time 
at  the  request  of  the  insured,  in  which  case  the  company 
shall,  upon  surrender  of  this  policy,  refund  the  excess  of 
paid  premium  above  the  customary  short  rates  for  the  ex- 
pired time.  This  policy  may  be  cancelled  at  any  time,  with- 
out tender  of  unearned  portion  of  premium,  by  the  com- 
pany by  giving  five  (5)  days'  written  notice  of  cancellation 
to  the  insured  and  to  any  mortgagee  or  other  party  to 
whom,    with    the    written    consent    of   the    company,    this 


BUSINESS   CONTRACTS  AND  LEGAL  OBLIGATIONS.  211 

policy  is  made  payable,  in  which  case  the  company  shall, 
upon  surrender  of  the  policy  or  relinquishment  of  liability 
thereunder,  refund  the  excess  of  paid  premium  above  the 
pro  rata  premium  for  the  expired  time. 

Duty  of  Insured  in  Case  of  Loss.  When  a  loss  occurs 
the  insured  must  give  to  this  company  written  notice 
thereof  without  unnecessary  delay;  and  shall  protect  the 
property  from  further  damage ;  forthwith  separate  the  dam- 
aged and  undamaged  personal  property  and  put  it  in  the 
best  possible  order ;  and  without  unnecessary  delay  make  a 
complete  inventory  stating  as  far  as  possible  the  quantity 
and  cost  of  each  article,  and  the  amount  claimed  thereon. 

Within  sixty  days  after  the  commencement  of  the  fire 
the  insured  shall  render  to  the  company  at  its  main  oflfice 
in  California  named  herein  preliminary  proof  of  loss  con- 
sisting of  a  written  statement  signed  and  sworn  to  by  him 
setting  forth  : — (a)  his  knowledge  and  belief  as  to  the  origin 
of  the  fire ;  (b)  the  interest  of  the  insured  and  of  all  others 
in  the  property;  (c)  the  cash  value  of  the  different  articles 
or  properties  and  the  amount  of  loss  thereon ;  (d)  all  incum- 
brances thereon ;  (e)  all  other  insurance,  whether  valid  or 
not,  covering  any  of  said  articles  or  properties;  (f)  a  copy 
of  the  descriptions  and  schedules  in  all  otfier  policies  unless 
similar  to  this  policy,  and  in  that  event,  a  statement  as  to 
the  amounts  for  which  the  different  articles  or  properties 
are  insured  in  each  of  the  other  policies ;  (g)  any  changes 
of  title,  use,  occupation,  location,  or  possession  of  said 
property  since  the  issuance  of  this  policy;  (h)  by  whom 
and  for  what  purpose  any  building  herein  described,  and 
the  several  parts  thereof,  were  occupied  at  the  time  of  the 
fire. 

If  the  company  claims  that  the  preliminary  proof  of  loss 
is  defective  and  within  five  days  after  the  receipt  thereof 
(without  admitting  the  amount  of  loss  or  any  part  thereof) 
notifies  in  writing  the  insured,  or  the  party  making  such 
proof  of  loss,  of  the  alleged  defects  (specifically  stating 
them)  and  requests  that  they  be  remedied  by  verified 
amendments  the  insured  or  such  party  within  ten  days  after 
the  receipt  of  such  notification  and  request  must  comply 
therewith,  or,  if  unable  so  to  do,  present  to  the  company  an 
affidavit  to  that  effect. 

The  insured  shall  also  furnish,  if  required,  as  far  as  it  is 
practicable  to  obtain  the  same,  verified  plans  and  specifica- 
tions of  any  buildings,   fixtures,   or   machinery  destroyed 


212  BUSINESS  LAWS  FGH  BUSINESS   MEN. 

or  damaged ;  and  the  insured  shall  exhibit  to  any  person 
designated  in  writing  by  this  company  all  that  remains  of 
any  property  herein  described  and  shall  submit  to  examina- 
tion under  oath,  as  often  as  required,  by  any  such  person, 
and  subscribe  to  the  testimony  so  given  and  shall  produce 
to  such  person  for  examination  all  books  of  account,  bills, 
invoices,  and  other  vouchers,  and  permit  extracts  and 
copies  thereof  to  be  made,  and  in  case  the  originals  are  lost 
certified  copies,  if  obtainable,  shall  be  produced. 

Ascertainment  of  Amount  of  Loss.  This  company  shall 
be  deemed  to  have  assented  to  the  amount  of  the  loss 
claimed  by  the  insured  in  his  preliminary  proof  of  loss, 
unless  within  twenty  days  after  the  receipt  thereof,  or,  if 
verified  amendments  have  been  requested,  within  twenty 
days  after  their  receipt,  or  within  twenty  days  after  the 
receipt  of  an  afifidavit  that  the  insured  is  unable  to  furnish 
such  amendments,  the  company  shall  notify  the  insured  in 
writing  of  its  partial  or  total  disagreement  with  the  amount 
of  loss  claimed  by  him  and  shall  also  notify  him  in  writing 
of  the  amount  of  loss,  if  any,  the  company  admits  on  each 
of  the  different  articles  or  properties  set  forth  in  the  pre- 
liminary proof  or  amendments  thereto. 

If  the  insured  and  this  company  fail  to  agree,  in  whole 
or  in  part,  as  to  the  amount  of  loss  within  ten  days  after 
such  notification,  this  comapny  shall  forthwith  demand  in 
writing  an  appraisemnt  of  the  loss  or  part  of  loss  as  to 
which  there  is  a  disagreement  and  shall  name  a  competent 
and  disinterested  appraiser,  and  the  insured  within  five 
days  after  receipt  of  such  demand  and  name,  shall  appoint 
a  competent  and  disinterested  appraiser  and  notify  the  com- 
pany thereof  in  writing,  and  the  two  so  chosen  shall  before 
commencing  the  appraisement,  select  a  competent  and  dis- 
interested umpire. 

The  appraisers  together  shall  estimate  and  appraise  the 
loss  or  part  of  loss  as  to  which  there  is  a  disagreement, 
stating  separately  the  sound  value  and  damage,  and  if  they 
fail  to  agree  they  shall  submit  their  differences  to  the  um- 
pire, and  the  award  in  writing  duly  verified  of  any  two  shall 
determine  the  amount  or  amounts  of  such  loss. 

The  parties  to  the  appraisement  shall  pay  the  appraisers 
respectively  appointed  by  them  and  shall  bear  equally  the 
expenses  of  the  appraisement  and  the  charges  of  the  umpire. 

If  for  any  reason  not  attributable  to  the  insured,  or  to  the 
appraiser  appointed  by  him,  an  appraisement  is  not  had  and 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  213 

completed  within  ninety  days  after  said  preliminary  proof 
of  loss  is  received  by  this  company,  the  insured  is  not  to  be 
prejudiced  by  the  failure  to  make  an  appraisement,  and  may 
prove  the  amount  of  his  loss  in  an  action  brought  without 
such  appraisement. 

Options  of  Company  in  Case  of  Loss.  This  company 
may,  at  its  option,  take  all  or  any  part  of  the  property  for 
which  insurance  hereunder  is  claimed  at  its  ascertained  or 
appraised  value,  and  may  also,  at  its  option,  in  satisfaction 
of  its  liability  hereunder,  repair,  rebuild  or  replace  any 
building-  or  structure  or  machine  or  machinery  used  therein, 
with  other  of  like  kind  and  quality,  within  a  reasonable  time, 
upon  giving  notice  within  twenty  days  of  its  intention  so  to 
do  after  the  receipt  by  it  of  the  preliminary  proof  of  loss, 
or,  if  verified  amendments  have  been  requested,  within 
twenty  days  after  their  receipt,  or,  within  twenty  days  after 
the  receipt  of  an  affidavit  that  the  insured  is  unable  to  fur- 
nish such  amendments. 

There  can  be  no  abandonment  to  this  company  of  any 
property. 

Apportionment  of  Loss.  This  company  shall  not  be  liable 
under  this  policy  for  a  greater  proportion  of  any  loss  on 
the  described  property,  or  for  loss  by,  and  expenses  of,  re- 
moval from  the  premises  endangered  by  fire,  than  the 
amount  hereby  insured  bears  to  the  entire  insurance  cover- 
ing such  property  whether  valid  or  not,  or  by  solvent  or 
insolvent  insurers. 

Loss  when  Payable.  A  loss  hereunder  shall  be  payable 
in  thirty  days  after  the  amount  thereof  has  been  ascertained 
either  by  agreement  or  by  appraisement ;  but  if  such  ascer- 
tainment is  not  had  or  made  within  sixty  days  .after  the 
receipt  by  the  company  of  the  preliminary  proof  of  loss, 
then  the  loss  shall  be  payable  in  ninety  days  after  such 
receipt. 

Non-waiver  by  Appraisal  or  Examination.  This  company 
shall  not  be  held  to  have  waived  any  provision  or  condition 
of  this  policy  or  any  forfeiture  thereof,  by  assenting  to  the 
amount  of  the  loss  or  damage  or  by  any  requirement,  act, 
or  proceeding  on  its  part  relating  to  the  appraisal  or  to  any 
examination  herein  provided  for. 

Subrogation.  If  this  company  shall  claim  that  the  fire 
was  caused  by  the  act  or  neglect  of  any  person  or  corpora- 
tion, this  company  shall,  on  payment  of  the  loss,  be  sub- 
rogated to  the  extent  of  such  payment  to  all  right  of  recov- 
ery by  the  insured  for  the  loss  resulting  therefrom,  and 


214  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

such  right  shall  be  assigned  to  this  company  by  the  insured 
on  receiving  such  payment. 

Time  for  Commencement  of  Action.  No  suit  or  action 
on  this  policy  for  the  recovery  of  any  claim  shall  be  sus- 
tained, until  after  full  compliance  by  the  insured  with  all 
of  the  foregoing  requirements,  nor  unless  begun  within 
fifteen  months  next  after  the  commencement  of  the  fire. 

Definitions.  Wherever  in  this  policy  the  word  "insured" 
occurs,  it  shall  be  held  to  include  the  legal  representatives 
of  the  insured  in  case  of  his  death,  and  wherever  the  word 
"loss"  occurs,  it  shall  be  deemed  the  equivalent  of  "loss  or 
damage,"  and  wherever  the  words  "the  time  of  loss  or 
damage"  are  used  they  shall  be  deemed  the  equivalent  of 
"the  time  of  the  commencement  of  the  fire." 

Sec.  2,  There  shall  be  printed  on  the  outside  fold  of  said 
policy  in  type  not  smaller  than  small  pica  the  following 
words  in  this  form : 

READ  THIS  POLICY. 

Ins.  Co.  is  liable  only  for  actual  cash  value. 

Policy  is  void  in  case  of  any  fraud,  false  swearing,  mis- 
representation or  concealment  about  material  facts. 

Policy  is  void,  unless  otherwise  agreed  in  writing,  if 

1st.  It  is  assigned  before  loss; 

2nd.  Insured  has  or  shall  procure  other  insurance ; 

3rd.  Any  change  occurs  in  location  of  property ; 

4th.  Insured  building  is  on  ground  not  owned  in  fee  sim- 
ple by  insured; 

5th.  Insured  is  not  sole  and  unconditional  owner. 

Policy  is  suspended,  unless  otherwise  agreed  in  writing,  if 

6th.  Described  building  becomes  vacant  or  unoccupied 
for  10  days ; 

7th.  Mechanics  are  employed  more  than  15  days  in  repair- 
ing same; 

8th.  Property  is  or  becomes  encumbered  by  chattel  mort- 
gage ; 

9th.  Illuminating  gas  or  vapor  is  generated  in  or  adjacent 
to  described  building; 

10th.  Explosives  or  prohibited  quantities  of  gasoline,  etc., 
are  kept  on  premises. 

Insurance  ceases  if  described  building  or  any  material 
part  falls  except  as  result  of  fire. 

Policy  does  not  cover  certain  enumerated  personal  prop- 
erty. 

Note  particularly  duty  of  insured  in  case  of  loss ; 

Also  provisions  avoiding  or  suspending  policy,  including 
changes  of  ownership  or  possession. 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS,  215 

Fire  Insurance  Agents 
Section    239.— APPOINTMENT    AND    AUTHORITY 
OF  AGENTS. — It  is  not  necessary  that  the  agent  of  a 
fire  insurance  company  should  have  or  produce  a  written 
appointment,  for  his  agency  may  be  shown  in  many  other 
ways.     The  fact  of  his  agency  may  be  inferred  from  the 
relations  he  sustains  to  the  company,  from  the  course  of 
prior  dealings  and  transactions  connected  with  it,  and  from 
the  acts  of  the  company  with  reference  to  the  particular 
policy  in  question.     The  agent's  authority  may  be  actual 
or  ostensible.     He  may  possess  and  show  an  appointment 
in  writing,  or  the  company  may  accept  the  fruits  of  his 
labors,  and  knowingly  permit  him  to  hold  himself  out  pub- 
licly as  the  company's  agent.     In  either  case  the  company 
will  not  be  allowed  to  shield  itself  behind  the  defense  that 
he  was  not  really  an  agent.     The  powers  of  the  agent  are 
prima  facie  coextensive  with  the  business  intrusted  to  his 
care,  and  will  not  be  narrowed  by  limitations  not  communi- 
cated to  the  person  with  whom  he  deals.     An  insurance 
company,  establishing  a  local  agency,  must  be  held  respon- 
sible to  the  parties  with  whom  it  transacts  business  for 
the  acts  and  declarations  of  the  agent  within  the  scope  of 
his  employment. 

Section  240.— BROKERS  OR  AGENTS.— The  question 
arises  as  to  the  diflference  between  a  broker  and  an  agent, 
in  suits  where  a  company  makes  the  defense  that  the  per- 
son claimed  to  have  acted  as  its  agent  was  not  such  in 
fact,  but  did  act  for  the  owner  of  the  property.  Where 
it  is  shown  that  the  owner  of  the  property  solicits  an  in- 
surance agent  to  procure  insurance  for  him,  and  himself 
pays  the  commission,  such  agent  will  be  deemed  not  the 
agent  of  the  company,  but  of  the  insured.  He  will  be 
deemed  a  mere  broker,  making  a  bargain  for  the  insured, 
and  receiving  a  commission  from  him  for  so  doing.  But 
where  the  company  employs  a  person  to  solicit  insurance, 
and  provides  him  with  blanks  and  other  papers,  and  pays 


216  BUSINESS   LzVWS  FOR  BUSINESS   MEN. 

him  a  commission  on  the  business  he  brings  in,  he  will  be 
deemed  the  agent  of  the  company,  and  not  of  the  insured. 
In  following  sections  will  be  found  illustrations  of  some 
leading  principles  of  agency  in  fire  insurance,  as  decided 
by  the  Supreme  Court  of  California. 

Section    241.— AGENT    WAIVING    FORFEITURE.— 

Simon  Silverberg  sued  the  Phenix  Insurance  Company 
upon  a  policy  of  fire  insurance.  When  the  case  was  tried, 
it  appeared  that  soon  after  the  occurrence  of  the  iire,  the 
company  being  notified  of  the  fact,  directed  the  proofs 
to  be  made  out,  which  was  done,  and  subsequently  required 
Silverberg  to  present  witnesses  and  vouchers.  After  these 
witnesses  and  vouchers  had  been  examined  at  length,  the 
company  said  the  proofs  were  satisfactory,  instructed  Sil- 
verberg to  make  out  formal  proofs  of  loss,  and  said  that 
the  money  would  be  paid  at  the  expiration  of  the  sixty 
days  allowed  by  the  policy  for  the  payment  of  the  loss. 
Upon  the  expiration  of  sixty  days,  a  demand  being  made 
for  the  money,  the  company  declared  that  the  policy  had 
been  avoided  by  a  breach  of  its  conditions,  and  refused 
to  pay.  The  question  was  whether  the  company's  agents 
had  waived  the  condition  of  the  policy  of  which  it  was 
claimed  there  had  been  a  breach.  The  facts  were,  that 
the  agents  of  the  company  had  full  knowledge  of  all  the 
facts  upon  which  the  forfeiture  was  based,  and  with  this 
knowledge  informed  Silverberg  that  the  insurance  would 
be  paid,  and  then  refused  to  pay  and  claimed  forfeiture. 
The  Supreme  Court  held  that  the  acts  of  the  company's 
agents  in  examining  witnesses  and  vouchers,  and  then 
expressing  satisfaction  and  a  willingness  to  pay,  after  full 
knowledge  of  all  the  facts,  constituted  a  waiver  of  any 
forfeiture  by  Silverberg  resulting  from  a  breach  of  the 
conditions  of  the  policy.  The  agents  of  the  company  were 
authorized,  there  being  no  provision  in  the  policy  to  the 
contrary,  to  modify  or  altogether  waive  a  condition  of  the 
policy.      (Decided    in   the   case   of   Silverberg  vs.    Phenix 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  217 

Insurance  Company,  which  decision  is  printed  in  Vohime 
67  of  the  California  Reports,  page  36.) 

Section  242.— AUTHORITY  OF  LOCAL  AGENT.— A 

local  agent  of  a  fire  insurance  company,  who  has  authority 
to  make  a  consummated  and  binding  contract  of  insurance 
by  countersigning  and  delivering  its  policy,  and  to  extend 
a  limited  credit  for  the  premium,  has  the  power  of  the  com- 
pany to  waive  a  condition  in  the  policy  that  it  shall  not 
be  binding  until  the  premium  is  actually  paid,  and  does 
waive  such  condition  by  delivering  the  policy  uncondition- 
ally under  an  agreement  for  credit,  though  the  term  of 
credit  given  be  in  excess  of  his  actual  authority. 

Section  243.— OSTENSIBLE  GENERAL  POWER  OF 
LOCAL  AGENT. — A  local  agent  of  a  fire  insurance  com- 
pany who  is  clothed  with  ostensible  general  authority  to 
solicit  applications,  receive  proposals,  make  contracts  for 
insurance,  receive  first  premiums,  and  to  countersign  and 
deliver  policies  within  certain  limits,  is  presumed  to  have 
the  general  power  of  the  company  within  those  limits  to 
waive  conditions  precedent  to  the  liability  of  the  company 
upon  policies  which  he  is  authorized  to  countersign  and 
deliver.  Such  local  agent  is  presumed  to  have  power  co- 
extensive with  the  business  intrusted  to  his  care,  and  his 
powers  will  not  be  narrowed  by  limitations  not  communi- 
cated to  the  person  with  whom  he  deals ;  and  he  may  bind 
his  principal  by  any  acts  or  contracts  within  the  general 
scope  of  his  apparent  authority. 

Section  244.— KNOWLEDGE  OF  AGENT  IS  THE 
KNOWLEDGE  OF  COMPANY.— Whether  an  agent  has. 
general  or  only  particular  powers  is  not  determined  by 
simply  calling  him  an  agent.  Where  any  fact  which  would 
constitute  a  breach  of  a  condition  precedent  to  any  lia- 
bility of  the  company  on  the  policy  is  fully  known  to  an 
agent  of  the  company,  local  or  general,  who  is  authorized 


218  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

to  consummate  the  contract  of  insurance,  the  knowledge 
of  such  agent  is  the  knowledge  of  the  company ;  and  if 
the  agent,  with  a  knowledge  of  the  breach  of  the  condition, 
still  recognizes  the  validity  of  the  policy,  this  constitutes 
a  waiver  by  the  company  of  the  forfeiture,  and  also  a 
waiver  of  the  general  requirement  that  conditions  can  only 
be  waived  in  writing  indorsed  on  the  policy  itself.  (De- 
cided by  the  Supreme  Court  of  California  in  the  case  of 
Farnum  vs.  Phoenix  Insurance  Company,  which  decision 
is  printed  in  Volume  83  of  the  California  Reports,  page 
260.) 

Section  245.— ORAL  WAIVER  OF  INDORSEMENT 
BY  LOCAL  AGENT.— A  local  agent  who  is  clothed  with 
general  power  to  consummate  contracts  of  insurance  within 
a  certain  territory  stands  in  the  stead  of  the  insurance  com- 
pany, and  represents  its  whole  power  to  give  validity  to 
the  contracts  which  he  is  authorized  to  execute  and  deliver, 
and  to  waive  conditions  precedent  to  its  liability  by  oral 
agreement,  so  far  as  to  estop  the  company  from  question- 
ing its  original  liability  by  reason  of  non-indorsement  of 
the  waiver  upon  the  policy  when  delivered. 


Section  246.— APPLICATION  MADE  OUT  BY 
AGENT  OF  COMPANY.— Insurance  companies  who 
do  business  through  the  medium  of  agents  are  responsible 
for  their  acts  within  the  general  scope  of  the  business 
intrusted  to  their  care,  and  no  limitations  of  their  author- 
ity will  be  binding  on  parties  with  whom  they  deal,  which 
are  not  brought  to  their  notice.  When  the  agent  under- 
takes to  prepare  the  application  for  the  insured,  he  will  be 
regarded  in  doing  so  as  the  agent  of  the  insurance  com- 
pany, and  not  of  the  insured ;  and  any  misstatements  con- 
tained in  the  application,  of  which  the  insured  is  ignorant, 
will  not  be  fatal  to  the  policy.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  Wheaton  vs.  North  British 


BUSINESS   CONTEACTS   AND  LEGAL   OBLIGATIONS.  219 

and    Mercantile    Insurance    Company,    which    decision    is 
printed  in  Volume  7^  of  the  California  Reports,  page  415.) 

Section  247.— FRAUD  OF  AGENT— DISOBEDIENCE 
OF  INSTRUCTIONS.— A  fire  insurance  company  is  bound 
by  the  acts,  omissions,  or  frauds  of  its  agent  when  acting 
within  the  scope  of  his  employment,  though  he  may  have 
disobeyed  the  instructions  received;  and  the  company  can- 
not be  permitted  to  derive  any  advantages  from  the  fraud 
of  the  agent  in  the  manner  of  transacting  its  business, 
upon  the  claim  that  the  agent's  fraudulent  conduct  was 
not  authorized.  Therefore,  fraudulent  concealment  of 
facts,  or  fraudulent  representations  of  an  agent  to  the 
insured,  binds  the  company  he  represents,  when  the  insured 
has  no  notice  of  any  limitations  upon  the  authority  of  the 
agent  in  the  transaction.  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  Stockton  Harvester  Works  vs. 
Glenn's  Falls  Insurance  Co.,  which  decision  is  printed  in 
Volume  98  of  the  California  Reports,  page  557.) 

Section  248.— WAIVER  OF  PETROLEUM  CLAUSE 
BY  AGENT. — A  condition  in  a  policy  for  loss  occurring 
while  petroleum  is  kept  or  used  on  the  insured  premises  is 
waived,  if  the  general  agent  of  the  insurer,  having  knowl- 
edge at  the  time  the  insurance  was  effected  that  petroleum 
was  kept  and  used,  consented  thereto,  and  represented  to 
the  insured  that  such  use  would  not  vitiate  the  policy, 
(Decided  by  the  Supreme  Court  of  California  in  the  case 
of  Herman  Kruger  vs.  Western  Fire  and  Marine  Insurance 
Company,  which  decision  is  printed  in  Volume  72  of  the 
California  Reports,  page  9L) 

Section  249.— WAIVER  CONTINUES  DURING  RE- 
NEWAL OF  POLICY.— A  waiver  of  conditions  in  the 
policy,  made  by  the  agent  of  the  company  at  the  time  the 
insurance  was  originally  effected,  continues  during  the 
subsequent  renewals  of  the  policy. 


220  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section   250.— AUTHORITY   OF   SPECIAL   AGENT. 

— Power  given  to  a  special  agent  of  a  fire  insurance  com- 
pany to  receive  proposals  for  insurance,  and  to  receive 
premiums,  subject  to  the  rules  of  the  company  and  in- 
structions  given  by  its  general  agent,  includes  power  to 
make  a  verbal  contract  for  insurance,  sanctioned  by  instruc- 
tions from  the  general  agent. 

Section  251.— ORAL  PROMISE  OF  POLICY.— A  dec- 
laration by  the  special  agent  to  the  insured,  made  at  the 
time  of  his  application  for  insurance,  that  it  was  unneces- 
sary for  him  to  make  a  written  application,  as  the  general 
agent  was  asking  for  the  insurance,  and  a  promise  by  the 
special  agent  that  a  policy  should  be  given  to  the  insured 
which  would  cover  the  insurance  applied  for  to  the  date 
of  the  oral  application,  taken  in  connection  with  letters 
from  the  general  agent  asking  if  the  insurance  would  be 
required,  is  sufficient  proof  of  the  special  agent's  author- 
ity to  bind  the  company  for  insurance  from  the  date  of 
the  oral  application.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Harron  vs.  City  of  London  Fire 
Insurance  Co.,  which  decision  is  printed  in  Volume  88  of 
the  California  Reports,  page  16.) 

Section  252.— AGENT'S  KNOWLEDGE  OF  FORMER 
INSURANCE. — Many  policies  contain  the  provision,  that 
"if  any  other  insurance  has  been  or  shall  hereafter  be 
made  upon  the  said  property  and  not  consented  to  by  this 
company  in  writing  hereon,  this  policy  shall  be  null  and 
void."  But  notwithstanding  this  provision,  where  there 
is  former  insurance,  which  is  not  noted  on  the  policy  in 
question,  if  the  agent  of  the  company  knows  of  the  former 
insurance,  and  the  policy  is  issued,  such  knowledge  of  the 
agent  is  knowledge  of  the  company,  and  the  policy  is  valid. 

Section  253.— OFFER  TO  RENEW  POLICY.— Where 

the  local  agent  of  a  fire  insurance  company  has  no  actual 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  221 

or  ostensible  authority  to  contract  for  the  renewal  of  a 
policy,  a  proposal  made  to  such  agent  for  a  renewal  is, 
until  communicated  to  and  accepted  by  the  insurance  com- 
pany, nothing  more  than  a  mere  offer  to  renew  the  policy; 
and  the  fact  that  the  agent  promised  to  communicate  the 
offer  to  the  company,  and  did  not  do  so  until  after  the 
loss,  does  not  create  a  binding  contract  of  renewal.  (De- 
cided by  the  Supreme  Court  of  California  in  the  case  of 
Stewart  vs.  The  Helvetia  Swiss  Fire  Insurance  Co.,  which 
decision  is  printed  in  Volume  102  of  the  California  Reports, 
page  218.) 

Section  254.— UNAUTHORIZED  CONTRACT  OF 
LOCAL  AGENT.— The  local  agent  of  the  New  Zealand 
Insurance  Co.  at  Fresno  was  not  authorized  to  make  con- 
tracts, but  sent  all  applications  to  the  Company  at  San 
Francisco  for  acceptance ;  he  received  an  application,  how- 
ever, and  told  the  insured  that  the  insurance  would  begin 
at  that  time ;  before  the  application  was  mailed  from  Fresno 
the  building  was  burned ;  the  company  was  sued  for  the 
loss,  but  the  Supreme  Court  said,  that  as  the  local  agent 
had  no  actual  or  ostensible  authority  to  make  a  contract 
of  insurance,  and  the  building  being  a  saloon,  which  class 
of  risks  the  company  did  not  take,  the  company  was  not 
liable  for  the  loss ;  and  it  made  no  difference  that  at  the 
time  when  the  application  was  made  the  special  agent  of 
the  company,  who  had  no  authority  to  enter  into  contracts, 
was  present  and  approved  of  it.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  O'Brien  vs.  New  Zealand 
Insurance  Company,  which  decision  is  printed  in  Volume 
108  of  the  California  Reports,  page  227.) 

Section  255.— WAIVER  FROM  KNOWLEDGE  OF 
AGENT. — The  act  of  the  agent  of  a  fire  insurance  com- 
pany, in  issuing  a  policy  on  an  application  alleging  uncon- 
ditional ownership,  is  a  waiver  of  such  condition,  where 
the  agent  knows  at  the  time  that  the  property  is  mortgaged, 


222  BUSINESS  LAWS  FOR  BUSINESS   MEN.  , 

and  that  a  foreclosure  suit  is  pending.  (Decided  by  the 
Supreme  Court  of  California  in  the  case  of  Breedlove 
vs.  Norwich  Union  Fire  Insurance  Co.,  which  decision 
is  printed  in  Volume  24  of  the  California  Reports,  page  164.) 
A  is  the  true  owner  of  property  which  stands  in  the  name 
of  B.  A  informs  the  insurance  company  of  the  condition 
of  the  title,  and  has  the  property  insured  in  the  name  of  B, 
and  the  loss  made  payable  to  A  "as  his  interest  may  appear." 
It  was  stipulated  in  the  policy  that  it  should  be  void  if  the 
interest  of  the  insured  should  be  other  than  unconditional 
and  sole  ownership.  Held  by  the  District  Court  of  Appeals, 
that  the  issuance  of  the  policy  upon  the  known  facts  was  a 
waiver  of  all  conditions  inconsistent  therewith,  and  the  true 
owner  was  entitled  to  recover  the  amount  of  the  policy, 
although  the  title  to  the  property  stood  in  the  name  of 
another.  The  company  was  informed  of  this  before  the 
policy  was  issued,  and  was  bound  by  that  knowledge. 
(Decided  by  the  California  District  Court  of  Appeals  in  the 
case  of  Loring  vs.  Duchess  Insurance  Company,  which 
decision  is  printed  in  Volume  I,  California  Appellate  De- 
cisions, page  128.) 

Life  Insurance 

Section  255a.— INSURABLE  INTEREST.— The  con- 
tract of  life  insurance  must  be  based  upon  an  insurable 
interest,  and  this  insurable  interest  must  arise  from  the 
relation  of  the  party  taking  the  insurance  to  the  insured, 
either  as  surety  or  debtor,  or  from  the  ties  of  blood  or 
marriage,  so  that  from  the  relation  thus  established  there 
may  be  some  expectation  of  benefit  or  advantage  in  the 
continuance  of  the  insured  life.  Every  person  has  an  insur- 
able interest  in  the  life  of  himself;  and  in  the  life  of  any 
person  on  whom  he  depends  wholly  or  in  part  for  educa- 
tion or  support ;  and  in  the  life  of  any  person  under  a  legal 
obligation  to  him  for  the  payment  of  money,  or  respecting 
property  or  services,  of  which  death  might  delay  or  prevent 
the  performance ;  and  in  the  life  of  any  person  upon  whose 


BUSINESS   CONTRACTS   AND  LEGAL.   OBLIGATIONS.  223 

life  any  estate  or  interest  vested  in  him  depends.  A  per- 
son who  is  not  related  to  another  has  no  insurable  interest 
in  his  life,  unless  the  latter  is  his  debtor,  or  in  some  other 
pecuniary  way  so  connected  with  him  as  to  afford  reason- 
able ground  for  expecting  some  relief  or  advantage  from 
the  continuance  of  the  life  of  the  insured.  The  result  of 
this  rule  is,  a  person  cannot  take  insurance  upon  the  life 
of  a  mere  stranger,  not  related,  or  under  obligation  in  some 
pecuniary  way;  for  such  a  policy  would  be  nothing  more 
nor  less  than  a  wager  or  gambling  policy,  which  the  law 
does  not  allow.  Husband  and  wife  have  an  insurable  in- 
terest in  the  lives  of  each  other,  and  so  do  father  and  child. 
It  has  been  held  by  the  courts  that  a  stepson  has  no  insur- 
able interest  in  the  life  of  his  stepfather,  where  he  has  a 
separate  home  and  family  of  his  own,  and  is  not  a  creditor, 
nor  in  any  way  dependent  upon  or  responsible  for  the  sup- 
port of  the  stepfather.  An  interest,  to  be  insurable,  must  be 
an  interest  in  favor  of  the  continuance  of  the  life,  and  not 
an  interest  in  its  loss  or  destruction.  Public  policy  does  not 
allow  any  one  having  no  insurable  interest  to  be  the 
owner  of  a  policy  of  insurance  upon  the  life  of  a  human 
being.  The  public  has  an  interest,  independent  of  the  con- 
sent and  concurrence  of  the  parties,  that  no  inducement 
shall  be  offered  to  one  man  to  take  the  life  of  another. 

A  person  has  such  an  insurable  interest  in  his  own  life 
that  he  may  insure  it  for  the  benefit  of  his  heirs,  or  even  for 
the  benefit  of  a  stranger. 

Civil  Code,  Section  2763. 

Section  255b.— CREDITOR'S  INTEREST.— A  creditor 
may  lawfully  take  out  a  policy  on  the  life  of  his  debtor  in 
an  amount  sufficient  to  cover  the  debt,  with  interest. 

Section  255c.— DELIVERY  OF  POLICY.— Actual  de- 
livery of  the  policy  into  the  hands  of  the  insured  is  not 
necessary  in  order  to  bind  the  company.  If  the  first  pre- 
mium is  paid  to  and  accepted  by  the  company,  and  a  policy 


224  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

issued  with  intent  to  deliver  to  the  insured,  it  is  valid  and 
binding  even  though  the  insured  dies  before  the  policy- 
reaches  him.  An  unconditional  delivery  of  a  policy  by  the 
company  to  its  agent,  for  delivery  to  the  insured,  binds  the 
company,  although  the  agent  never  parts  with  possession  of 
the  policy.  Possession  of  the  policy  by  the  insured,  at  his 
death,  is  prima  facie  proof  that  it  was  duly  delivered  to  him. 

Section  255d.— PLACE  OF  CONTRACT.— It  is  some- 
times important  to  determine  where  the  law  puts  the  loca- 
tion of  a  contract,  the  place  where  it  is  deemed  to  have 
been  made.  The  rule  on  this  subject  is,  that  the  contract 
is  deemed  to  have  been  made  where  the  policy  is  issued. 
For  instance,  if  the  application  is  sent  to  the  office  of  the 
company  in  New  York,  and  the  policy  is  executed  and 
issued  there,  it  is  a  New  York  contract,  to  be  construed 
according  to  the  laws  of  New  York.  If,  on  the  other  hand, 
the  policy  is  executed  and  issued  from  the  office  of  the 
company  in  the  State  of  California,  it  is  a  California  con- 
tract, to  be  construed  according  to  the  laws  of  California. 
It  is  to  be  understood,  in  this  connection,  however,  that 
it  is  within  the  power  of  the  contracting  parties,  by  the  ex- 
press terms  of  their  contract,  to  establish  the  place  where 
it  shall  have  effect,  and  under  what  laws  it  shall  be  con- 
strued. If  anything  appears  in  the  application  upon  which 
the  policy  is  issued,  or  in  the  policy  itself,  that  discloses  an 
intention  that  the  policy  shall  be  construed  according  to 
the  laws  in  force  in  any  other  state  than  the  one  in  which 
it  was  actually  made  and  delivered,  such  intention  must 
govern,  and  will  have  the  eflfect,  so  far  as  the  construction 
of  the  contract  is  concerned,  to  change  the  place  of  its 
execution  so  as  to  correspond  with  the  intention  of  the 
parties. 

Section  255e.— INTERPRETATION  OF  POLICY.— A 

policy  of  life  insurance  must  be  interpreted  and  construed 
according  to  the  principles  which  govern  other  contracts. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  225 

The  intention  of  the  parties  is  the  first  thing  to  be  consid- 
ered, and  that  intention  is  to  be  ascertained  from  the  policy 
itself,  if  possible.  The  courts  do  not  favor  forfeitures,  and 
a  policy  of  insurance  will  always  be  construed  in  favor  of 
upholding  the  contract,  if  such  construction  is  possible  from 
the  language  used.  All  conditions  involving  forfeitures  will 
be  construed  strictly  as  against  the  company,  and  most 
favorably  for  the  insured.  When  a  policy  is  capable  of  two 
meanings,  that  which  is  most  favorable  to  the  insured  will 
be  adopted  by  the  courts. 

Section  255f.— CONDITIONS  IN  POLICY.— The  con- 
ditions in  a  life  insurance  policy,  to  be  observed  by  the 
insured — as,  for  payment  of  premiums,  or  against  use  of 
alcoholic  beverages,  and  other  stipulations — must  be  ad- 
hered to  by  the  insured,  at  the  risk  of  rendering  the  policy 
void  if  he  does  not  observe  them.  But  the  courts  construe 
the  conditions  named  in  a  policy  most  strongly  against  the 
company,  and  in  favor  of  the  insured.  There  are  conditions 
stated,  too,  the  violation  of  which  does  not  render  the  pol- 
icy absolutely  void,  but  only  make  it  voidable,  at  the  option 
of  the  insurance  company.  Of  these,  the  conditions  pro- 
hibiting the  insured  from  traveling,  or  living  in  certain 
places,  may  be  cited  as  illustrations  of  the  kind  of  condi- 
tions the  breach  of  which  renders  the  policy  voidable,  and 
not  void.  The  company,  upon  the  breach  of  such  conditions, 
may  proceed  to  declare  a  forfeiture,  and  cancel  the  policy; 
or  it  may,  by  accepting  further  premiums,  or  recognizing 
the  continued  life  of  the  policy,  evidence  a  waiver  on  its 
part  of  the  voidable  conditions. 

Section  255g.— WAIVER  OF  CONDITIONS.— A  waiv- 
er of  the  conditions  in  a  policy  may  be  either  verbal  or  in 
writing.  If  in  writing,  the  writing  speaks  for  itself.  But 
a  waiver  may  be  shown  by  acts  and  circumstances.  Where 
the  agent  of  a  life  insurance  company,  having  knowledge  of 
some  act  on  the  part  of  the  insured  constituting  a  breach 


2^6 


BUSINESS  LAWS  FOR  BUSINESS   MEN. 


of  condition,  proceeds  to  treat  the  policy  as  valid,  by  accept- 
ing premiums,  or  in  some  other  way  ignoring  the  breach, 
the  breach  of  condition  will  be  considered  as  having  been 
waived  by  the  company.  If  an  insurance  company,  having 
knowledge  of  facts  rendering  its  policy  voidable,  deliber- 
ately claims  and  exercises  a  right  under  the  policy,  it  waives 
all  right  to  avoid  it  because  of  such  facts.  An  insurance 
company  is  not  permitted  to  collect  premiums  with  full 
knowledge  of  facts  which  might  avoid  the  policy,  (and 
knowing  that  the  insured  continues  to  disregard  a  pro- 
vision working  a  forfeiture,)  and  then  to  deny  the  validity 
of  the  policy  when  a  loss  occurs.  The  company  will  always 
be  bound  by  its  waiver  of  the  conditions  in  a  policy.  If  an 
insurance  company,  after  knowledge  of  any  default  for 
which  it  might  terminate  the  policy,  enters  into  negotiations 
or  transactions  with  the  insured  which  recognize  the  con- 
tinued validity  of  the  policy  and  treat  it  as  still  in  force, 
the  right  to  claim  a  forfeiture  for  such  previous  default  is 
waived. 

Section  255h.— REPRESENTATIONS  BY  INSURED. 

— A  person  who  makes  an  application  for  life  insurance 
must  not  make  false  representations  about  any  material 
matter,  for  if  he  does  do  so  the  policy  can  be  canceled. 
False  answers  about  the  health  of  the  applicant  will  render 
a  policy  voidable.  Concealing  the  truth,  as  when  the 
applicant  states  that  he  is  in  good  health,  when  in  fact  he 
is  suffering  from  disease,  will  be  good  reason  for  canceling 
a  policy. 

The  law  presumes  that  all  the  answers  to  questions  con- 
tained in  an  application  are  true  and  correct,  and  it  is  for 
the  company  to  show  that  the  statements  which  it  claims  as 
false  really  are  so,  if  it  seeks  to  avoid  a  policy  on  the  ground 
of  false  representations  by  the  insured. 

Section  2551.— EFFECT  OF  DISEASE  OF  APPLI- 
CANT ON  POLICY.— A  disease  known  to  the  applicant 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  227 

for  a  policy,  but  not  discovered  by  the  agents  of  a  company, 
and  concealed  by  the  applicant,  will  be  ground  for  forfeiture. 
But,  if  the  applicant  is  afflicted  with  a  disease  and  does  not 
know  it,  his  failure  to  communicate  the  fact  will  not  be 
regarded  as  a  fraud  upon  the  insurance  company. 

Section   255j.— MEANING   OF   "GOOD    HEALTH."— 

The  health  of  body  required  at  the  time  of  making  applica- 
tion for  life  insurance  is  not  perfect  and  absolute  health,  nor 
is  it  necessary  that  it  vShould  exclude  all  disorders  and  in- 
firmities which  may  possibly  shorten  life.  Only  an  ordinary 
and  reasonable  degree  of  health  is  required,  in  order  to 
make  the  insurance  effective.  The  term  "good  health," 
when  used  in  an  application  for  a  policy  of  life  insurance, 
means  that  the  applicant  has  no  grave,  important,  or  seri- 
ous disease,  and  is  free  from  any  ailment  that  seriously 
affects  the  soundness  and  healthfulness  of  the  system.  A 
mere  temporary  indisposition,  which  does  not  tend  to 
weaken  or  undermine  the  constitution  of  the  person  at 
the  time  of  insuring,  does  not  render  a  policy  void. 

Section  255k.— MALT  AND  SPIRITUOUS  BEVER- 
AGES.— The  question,  "Do  you  use  malt  or  spirituous  bev- 
erages?" asked  of  an  applicant  for  life  insurance  refers  to 
a  customary  and  habitual  use,  and  not  to  a  single  or 
occasional  act  or  use ;  and  the  question,  "Have  you  always 
been  temperate?"  means  moderation,  and  an  abstinence 
from  excessive  or  injurious  use,  and  not  total  abstinence 
from  the  use  of  malt  or  spirituous  liquors. 

Section  255  1.— PAYMENT    OF    PREMIUMS.— Notice 

must  be  given  to  the  insured  of  the  time  when  premiums 
become  due,  and  the  premiums  must  be  paid  promptly,  in 
order  to  save  the  policy  from  forfeiture,  unless  the  com- 
pany waives  payment  when  due  and  extends  the  time. 


228  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

Section   255n..— CREDIT   FOR   PREMIUMS.— A   pro 

vision  in  a  policy  of  insurance,  that  the  company  shall  not 
be  liable  until  the  premium  is  actually  paid,  is  waived  by  an 
unconditional  deliver}'-  of  the  policy  to  the  insured  as  a 
completed  contract  under  an  express  or  implied  agreement 
that  credit  shall  be  given. 

Section  255n.— FORFEITURE  FOR  NON-PAYMENT 
OF  PREMIUM. — If  the  premium  is  not  paid,  after  notice 
from  the  company,  the  policy  will  be  forfeited.  But  when 
an  insurance  company  receives  payments  of  premiums 
when  they  are  overdue,  and  when  it  might  refuse  payment 
and  declare  the  policy  forfeited  under  its  "by-laws,"  it  can- 
not accept  and  keep  the  money,  and  still  insist  upon  a 
forfeiture. 

Forfeiture  of  a  life  insurance  policy  for  non-payment  of 
premium  when  it  becomes  due  cannot  be  insisted  upon  by 
the  company,  when  by  the  terms  of  the  policy  the  insured 
is  entitled  to  share  in  the  profits,  and  therefore  cannot  know 
without  notice  what  amount  he  is  required  to  pay,  and  no 
notice  has  been  given  to  him  of  what  sum  the  company 
claims  to  be  due  on  the  policy. 

Section  255  c— REVIVAL  OF  FORFEITED  POLICY, 

— A  policy  of  life  insurance,  forfeited  for  non-payment  of 
premium  at  maturity,  can  only  be  revived,  as  far  as  the 
insured  is  co-ncerned,  by  the  actual  payment  and  accept- 
ance of  the  overdue  premium,  or  by  a  contract  with  the 
company  based  upon  a  sufficient  consideration  to  revive  and 
reinstate  the  insurance. 

A  reinstatement  of  the  insurance  after  a  forfeiture  is  not 
the  making  of  a  new  contract,  where  no  different  terms  are 
agreed  upon.     It  simply  restores  the  old  policy. 

Section  255p.— PROOF  OF  DEATH.— The  require- 
ments of  the  policy  as  to  proof  of  death  must  be  complied 
with  by  the  beneficiary  before  he  can  collect  the  insurance. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  229 

If  the  policy  states  the  proof  which  must  be  furnished,  and 
the  time,  its  directions  must  be  obeyed.  If  the  policy  does 
not  state  the  particular  proof,  or  the  manner  of  making 
proof,  the  fact  of  death  must  be  shown  to  the  company  with 
reasonable  definiteness  and  certainty,  in  any  reasonable 
manner. 

Failure  to  furnish  proof  of  death  within  the  time  limited 
by  a  life  insurance  policy  is  waived,  when  the  company 
makes  a  proposal  to  settle,  or  absolutely  refuses  to  pay,  or 
denies  all  liability,  or  asks  for  additional  proof  without 
making  objection  that  the  proof  given  was  not  furnished  in 
time. 

Section  255q. — SUICIDE. — In  the  law  of  insurance,  sui- 
cide is  not,  as  a  rule,  recognized  as  a  ground  of  exemption 
from  liability,  or  for  the  forfeiture  of  a  policy  issued  for  the 
benefit  of  a  third  person,  unless  it  is  expressly  so  provided 
in  the  policy.  Where  a  policy  of  life  insurance  contains  a 
condition  that  in  case  the  insured  shall  die  by  his  own  hand, 
whether  sane  or  insane,  the  policy  shall  become  null  and 
void,  the  suicide  of  the  insured  will  prevent  a  recovery  on 
the  policy.  But  the  presumption  is  against  the  suicide  of 
the  insured,  and  the  company,  if  it  refuses  to  pay  on  that 
ground,  must  itself  furnish  satisfactory  proof  that  the 
msured  did  die  by  his  own  hand.  Nothing  appearing  to  the 
contrary,  the  legal  presumption  is  that  a  man  died  from 
a  natural  cause,  and  not  from  an  act  of  self-destruction. 
The  mere  fact  of  death  in  an  unknown  manner  creates  no 
presumption  of  suicide. 

Section  255r.~ASSIGNMENT  OF  POLICY.— A  policy 
of  life  insurance  may  be  assigned  and  transferred,  and  the 
assignee  will  stand  in  the  place  of  the  insured,  be  subject 
to  his  liabilities,  and  entitled  to  his  benefits.  The  assign- 
ment may  be  an  absolute  sale  and  transfer,  or  the  policy 
may  be  assigned  as  security  for  a  debt.  Notice  of  the 
assignment  is  not  required  to  be  given  to  the  company, 


230  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

unless  the  policy  contains  a  condition  requiring  such  notice 
to  be  given. 

A  policy  on  the  life  of  the  insured  payable  to  his  legal 
representatives  may  be  assigned  by  him,  with  the  consent 
of  the  company ;  and  in  such  case  the  rights  of  the  assignee 
are  paramount  to  the  claims  of  the  heirs  or  personal  repre- 
sentatives of  the  insured. 

The  assignment  may  be  to  relatives  of  the  insured,  or  it 
may  be  to  a  stranger  who  has  no  insurable  interest  in  the 
life  of  the  insured. 

If  a  policy  of  insurance  expressly  stipulates  that  no  as- 
signment shall  be  valid  without  the  consent  of  the  company, 
an  assignment  without  such  consent  is  without  effect.  The 
insured,  in  this  case,  is  presumed  to  have  taken  out  the 
insurance  with  knowledge  of  the  stipulation,  and  is  bound 
by  it. 

Assignment  of  a  policy,  made  payable  to  certain  described 
beneficiaries,  should  be  with  the  consent  of  the  beneficiaries. 
Civil  Code,  Sections  2764,  2765. 

Section  255s.— BENEFICIARIES  OF  LIFE  INSUR- 
ANCE.— The  insured  may  have  the  policy  made  payable 
to  his  estate,  or  to  particular  persons  named  in  the  policy  as 
beneficiaries. 

A  policy  of  life  insurance  creates  vested  interests  in  the 
beneficiaries  named  therein,  and  although  the  contract  may 
be  canceled  by  the  company  in  case  the  insured  fails  to  keep 
the  stipulations,  the  insured  himself  cannot  revoke  the 
contract  without  the  consent  of  the  beneficiaries. 

The  proceeds  of  a  policy  of  life  insurance  made  payable 
to  the  heirs  of  an  insured  husband  go  to  his  widow  and 
children,  in  the  proportion  provided  by  the  laws  of  the  State 
for  distribution  of  estates. 

Section  255t.  —  DEEfUCTION  OF  UNPAID  PRE- 
MIUMS.— The  insurance  company  is  entitled  to  have  the 
amount  of  premium   remaining  due   for  the   current  year, 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  231 

after  the  death  of  the  insured,  deducted  from  the  amount  of 
the  policy  before  paving  it. 

Life  Insurance  Agents 

Section  255u.— PRINCIPLES  OF  AGENCY.— The  prin- 
ciples of  agency  stated  under  the  head  of  "Fire  Insurance 
Agents"  apply  equally  to  agents  of  life  insurance  companies. 
They  bind  their  principals  in  the  same  way;  their  represen- 
tations as  to  the  business  entrusted  to  them  have  the  same 
effect ;  they  may  waive  conditions  of  the  contract  to  the 
same  extent ;  and,  as  there  is  no  special  rule  applying  par- 
ticularly to  life  insurance  agents,  it  will  be  sufficient,  as  to 
them,  to  refer  to  the  subject  of  "Fire  Insurance  Agents." 

Accident  Insurance 

Section  255v.— THE  POLICY.— A  policy  of  accidental 
insurance  is  issued  and  accepted  for  the  purpose  of  furnish- 
ing indemnity  against  accidents  and  death  caused  by  acci- 
dental means,  and  the  language  of  the  policy  must  be 
construed  with  reference  to  the  subject  to  which  it  is  ap- 
plied. In  the  construction  of  an  accident  insurance  policy, 
however,  its  provisions  will  be  usually  interpreted  most 
favorably  for  the  insured,  in  case  of  doubt  or  uncertainty 
in  their  terms.  If  a  stipulation  or  exception  in  a  policy  of 
accident  insurance  is  capable  of  two  meanings,  that  will  be 
adopted  which  is  most  favorable  to  the  insured.  In  other 
words,  if  there  is  doubt  or  uncertainty  as  to  the  meaning  of 
terms  employed  in  a  policy  of  accident  insurance,  the  lan- 
guage must  be  liberally  construed  in  favor  of  the  insured, 
so  as  not  to  defeat,  without  a  plain  necessity,  his  claim  to 
indemnity,  which,  in  effecting  the  insurance,  it  was  his 
object  to  secure. 

Section  255w.— DEFINITION  OF  ACCIDENT.— Some 
difficulty  has  been  experienced  by  the  courts  in  arriving  at 
a  satisfactory  and   comprehensive   definition   of  the   word 


232  BUSINESS   LAWS   FOR   BUSINESS    MEN. 

"accident"  as  used  in  insurance  policies.  Worcester  defines 
"accident"  to  be  "an  event  proceeding  from  an  unknown 
cause,  or  happening  without  the  design  of  the  agent." 
Webster's  definition  is,  "An  event  that  takes  place  without 
one's  foresight  or  expectation ;  an  event  which  proceeds 
from  an  unknown  cause,  or  is  an  unusual  effect  of  a  known 
cause,  and  therefore  not  expected." 

The  definition  of  "accident"  generally  adopted  is,  an  event 
happening  without  any  human  agency,  or,  if  happening 
through  human  agency,  an  event  which,  under  the  circum- 
stances, is  unusual,  and  not  expected  by  the  person  to 
whom  it  happens. 

Disease,  produced  by  the  action  of  a  known  cause,  cannot 
be  considered  accidental.  In  the  term  "accident"  is  neces- 
sarily involved  some  violence,  some  unusual  and  unforeseen 
cause. 

Section  255x,— DEATH  BY  ACCIDENTAL  MEANS. 
— "Death  by  accident"  means  death  from  any  unexpected 
event  which  proceeds  from  an  unknown  and  unforeseen 
cause,  happening  without  the  design  of  the  person  to  whom 
the  accident  occurs.  Unnatural  death,  the  result  of  accident 
of  any  kind,  imports  an  external  and  violent  agency  as  the 
cause. 

Section  255y.— HANGING  ONE'S  SELF  WHILE  IN- 
SANE.— It  has  been  held  that  it  is  accidental  death,  where 
one  hangs  one's  self  while  insane,  unconscious  of  the  act, 
and  incapable  of  an  intelligent  intention  to  take  one's  own 
life. 

Section    255z.— BEING     KILLED     BY     ROBBERS.— 

Death  by  being  waylaid  and  assassinated  by  robbers  makes 
the  company  liable,  under  a  ])olicy  insuring  the  person  so 
killed  against  death  through  "external,  violent,  or  accidental 
means." 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  233 

Section  255aa.— DEAtH  BY  DROWNING.— Drowning 
is  a  death  from  external  violence,  in  the  meaning  of  an  acci- 
dent insurance  policy. 

Section  255bb.— DEATH  FROM  FRIGHT.— Where  the 

insured  was  driving  upon  a  public  street,  and  his  horse 
became  frightened  by  an  unsightly  object,  without  upset- 
ting the  carriage  or  coming  in  contact  with  anything,  and 
was  at  length  brought  under  control,  but  the  insured  was 
apparently  greatly  endangered  at  the  time,  and  sufifered  so 
severely,  either  from  fright  or  strain  caused  by  physical 
exertion  in  restraining  the  horse,  that  he  died  within  an 
hour  afterward ;  it  was  held  that  his  death  was  caused  by 
"bodily  injuries  effected  through  external,  violent,  and  acci- 
dental means." 

Section  255cc.— DEATH  BY  FALLING.— Where  the 
insured  while  traveling  by  rail,  during  a  stoppage  of  a 
train  on  a  bridge,  went  to  the  front  platform  of  the  coach 
in  which  he  was  riding  and  stepped  off,  falling  through  a 
hole  in  the  floor  of  the  bridge  and  meeting  his  death,  this 
was  held  to  be  death  by  accident  in  the  meaning  of  the 
policy. 

If  a  temporary  and  unexpected  physical  disorder  causes 
the  insured  to  fall  and  injure  himself,  the  injury  is  received 
through  violent,  external,  and  accidental  means,  and  the 
insurance  company  is  liable  therefor. 

Section  255dd.— TAKING  POISON   BY  MISTAKE.— 

The  words  "taking  poison,"  as  employed  in  a  clause  of  an 
accident  insurance  policy,  exempting  the  company  from 
liability  for  death  from  "taking  poison,"  mean  the  volun- 
tary, intentional  taking  of  poison,  and  do  not  include  cases 
of  accidental  poison.  Hence,  the  company  is  liable  for  the 
death  of  one  who,  by  mistake,  drinks  carbolic  acid  for  pep- 
permint, which  he  wishes  to  take  for  some  ailment,  and 
dies  from  the  effects  of  the  poison. 


234  BUSINESS   LAWS   FOR   BUSINESS    MEN. 

Section  255ee.— DEATH  BY  MURDER.— Whether  the 

company  will  be  liable  for  death  by  murder,  in  any  case, 
depends  upon  the  wording  of  the  policy.  If  the  policy  ex- 
empts the  company  from  liability  for  "intentional  injury 
inflicted  by  the  insured  or  any  other  person,"  then  the 
company  will  not  be  liable  for  the  murder  of  the  insured. 
If,  however,  the  policy  covers  merely  "injuries  from  external 
violence  and  accidental  means,"  without  the  exception 
above  noted,  the  company  will  be  liable  when  the  insured  is 
murdered. 

Section  255ff.— DEATH  BY  INHALING  GAS.— The 
inhaling  of  gas,  within  the  exemption  of  insurance  policies, 
means  a  voluntary  and  intelligent  act  of  the  insured,  and 
not  an  involuntary  and  unconscious  act.  Therefore,  if  the 
insured  while  he  sleeps  is  accidentally  overcome  by  inhaling 
gas  without  intention  or  connivance  on  his  part,  the  com- 
pany will  be  liable. 

Section  255gg.— LOSS  OF  HAND.— Under  a  policy 
making  the  company  liable  for  "loss  of  hand"  it  is  not  neces- 
sary to  show  that  the  entire  hand  is  gone.  If  the  hand  is  so 
injured  as  to  become  useless  as  a  hand,  the  company  is 
liable  as  for  an  entire  loss. 

Section  255hh.— LOSS  OF  FEET.— Under  a  policy 
agreeing  to  pay  an  indemnity  for  loss  of  "two  entire  feet," 
it  is  not  necessary  to  show,  in  order  to  make  the  company 
liable  that  the  legs  or  feet  were  severed  from  the  body. 
It  is  only  necessary  to  show  that  the  insured  has  lost  the 
use  of  the  feet  as  members  of  his  body;  as,  where  through 
accident  the  lower  part  of  the  body  has  become  totally 
paralyzed,  and  thus  the  use  of  the  feet  destroyed. 

Section  255ii.— LOSS  OF  BUSINESS.— If  a  policy  pro- 
vides that  the  insured  shall  be  paid  a  certain  sum  per  week, 
for  the  immediate,  continuous,  total  loss  of  such  business 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  235 

time  as  may  result  from  an  accidental  injury,  he  is 
entitled  to  recover  if  his  injury  is  such  that  he  loses  his 
time  in  the  business  in  which  he  was  engaged  when  insured, 
though  there  are  other  business  pursuits  from  which  the 
accident  would  not  incapacitate  him. 

Section  255jj.  —  TOTAL  DISABILITY.  —  The  insured 
suffers  a  total  disability,  if  his  injuries  are  of  such  charac- 
ter that  common  care  and  prudence  require  him  to  desist 
from  the  transaction  of  any  business  pertaining  to  his  occu- 
pation, so  long  as  it  is  reasonably  necessary  to  effect  a 
cure.  Ability  to  occasionally  perform  some  single  and 
trivial  act  of  business  does  not  render  his  disability  partial 
instead  of  total,  provided  he  is  unable  substantially,  to  a 
material  extent,  to  transact  any  kind  of  business  pertaining 
to  his  occupation. 

Section  255kk.— "DISEASE"  AND  "BODILY  INFIRM- 
ITY."— The  words  "disease"  and  "bodily  infirmity,"  as 
used  in  an  accident  insurance  policy,  exempting  the  com- 
pany from  liability  for  injury  from  such  cause,  mean,  prac- 
tically, the  same  thing.  They  refer  to  some  ailment  or 
disorder  of  a  somewhat  established  and  settled  character, 
some  physical  disturbance  to  which  the  insured  is  subject, 
and  of  which  an  attack  causing  him  an  injury  is,  in  some 
measure,  a  recurrence ;  and  they  have  no  reference  to  some 
temporary  disorder,  new  and  unusual,  arising  from  some 
sudden  and  unexpected  derangement  of.  the  system. 

Section  255  11.— DISEASE  PRODUCED  BY  KNOWN 
CAUSE. — Disease  produced  by  the  action  of  a  known  cause 
cannot  be  considered  as  accidental.  Thus,  disease,  or  death, 
engendered  by  exposure  to  heat,  cold,  damp,  the  vicissitudes 
of  climate,  or  atmospheric  influences,  cannot  properly  be 
said  to  be  accidental. 

Section  255mm.  —  CONDITION  AGAINST  CHANGE 
OF  OCCUPATION.— Where  there  is  a  condition  in  a 
policy  against  change  of  occupation  by  the  insured,  the 


236  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

word  "occupation"  has  reference  to  the  vocation,  trade,  or 
calling  which  he  is  engaged  in  for  hire  or  for  profit;  and 
the  condition  does  not  preclude  him  from  the  performance 
of  acts  and  duties  which  are  incidentally  connected  with 
the  life  of  men  in  any  or  all  occupations,  or  from  engaging 
in  mere  acts  of  exercise,  diversion,  and  recreation. 

Section  255nn.— VOLUNTARY  EXPOSURE  TO  DAN- 
GER.— The  insured  cannot  recover  upon  an  accident  insur- 
ance policy  if  he  has  voluntarily  and  intentionally  exposed 
himself  to  the  danger  from  which  the  injury  resulted.  Vol- 
untary exposure  to  unnecessary  danger,  within  the  meaning 
of  an  accident  insurance  policy,  is  a  conscious  or  intentional 
exposure  involving  gross  or  wanton  negligence  on  the  part 
of  the  insured.  The  intention  of  the  insured  to  voluntarily 
expose  himself  to  unnecessary  danger  may  be  inferred  from 
his  acting  so  recklessly  and  carelessly  as  to  show  an  utter 
disregard  of  known  danger,  or  from  his  taking  the  risk  of 
a  danger  which  is  so  obvious  that  a  prudent  man,  exercising 
reasonable  forethought,  would  not  have  taken  it. 

Section  255  oo.— PROOF  OF  INJURY  OR  DEATH.— 

Proof  of  injury  or  death  must  be  given  in  the  manner  and 
at  the  time  specified  in  the  policy.  The  company  may  waive 
the  proof,  either  expressly,  or  by  conduct  and  acts  which 
amount  to  a  waiver;  but,  if  there  is  no  waiver  on  the  part 
of  the  company,  proof  of  injury  or  death  must  be  made  as 
required  by  the  policy. 


Accident  Insurance  Agents 

Section  255pp.  —  PRINCIPLES  OF  AGENCY.  —  The 
principles  of  agency  stated  under  the  head  of  "Fire  Insur- 
ance Agents"  apply  equally  to  agents  of  accident  insurance 
companies.  They  bind  their  principals  in  the  same  way ; 
their  representations  as  to  the  business  entrusted  to  them 
have  the  same  eflfect;  they  may  waive  conditions  of  the 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  237 

contract  to  the  same  extent ;  and  as  there  is  no  special 
rule  applying  particularly  to  accident  insurance  agents,  it 
will  be  sufficient,  as  to  them,  to  refer  to  the  subject  of  "Fire 
Insurance  Agents." 

Marine  Insurance 

Section  255qq.  —  THE  POLICY.  —  Marine  insurance, 
though  upon  property  and  against  risks  unknown  on  land, 
is  to  be  construed  by  the  same  principles  which  apply  to 
other  insurance  policies.  In  the  construction  of  a  marine 
policy,  as  in  the  construction  of  other  policies,  the  intention 
of  the  contracting  parties  is  the  first  thing  to  be  determined. 
The  courts  will  enforce  the  contract  as  the  parties  intended 
it  to  be,  provided  this  can  be  done  without  violation  of  law 
and  in  accordance  with  a  reasonable  construction  of  the 
policy.  Premiums  must  be  paid,  and  other  conditions  ob- 
served, as  faithfully  in  marine  as  in  other  forms  of  insur- 
ance. Conditions  may  be  waived  also,  in  like  manner  as 
in  other  insurance,  by  express  consent,  or  by  conduct  and 
circumstances  from  which  a  waiver  is  inferred. 

Section  255rr.— DEFINITION  OF  MARINE  INSUR- 
ANCE.— Marine  insurance  is  an  insurance  against  risks 
connected  with  navigation,  to  which  a  ship,  cargo,  freight- 
age, profits,  or  other  insurable  interests  in  movable  property, 
may  be  exposed  during  a  certain  voyage  or  a  fixed  period 
of  time. 

Civil  Code,  Section  2655. 

Section  255ss.— INSURABLE  INTEREST.— The  owner 
of  a  ship  has  in  all  cases  an  insurable  interest  in  it,  even 
when  it  has  been  chartered  by  one  who  covenants  to  pay 
him  its  value  in  case  of  loss. 

The  insurable  interest  of  an  owner  who  has  hypothecated 
the  ship  as  security  for  a  loan,  to  be  repaid  only  in  case  the 
ship  survives  a  particular  risk,  voyage,  or  period,  is  only 


238  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

the  excess  of  the  value  of  the  ship  over  the  amount  secured 
as  a  loan. 

Freightage,  in  the  sense  of  a  policy  of  marine  insurance, 
means  all  the  benefits  derived  by  the  owner  either  from 
the  chartering  of  the  ship  or  its  employment  for  the  car- 
riage of  his  own  goods  or  those  of  others. 

The  owner  of  a  ship  has  an  insurable  interest  in  expected 
freightage,  which  he  would  have  certainly  earned  had  it  not 
been  for  the  happening  of  a  peril  insured  against.  This  in- 
terest in  expected  freightage  exists,  in  the  case  of  a  charter- 
party,  when  the  ship  has  broken  groimd  on  the  charter  voy- 
age ;  or  if  a  price  is  to  be  paid  for  the  carriage  of  goods, 
when  they  are  actually  on  board,  or  there  is  some  contract 
for  putting  them  on  board  and  both  ship  and  goods  are 
ready  for  the  specified  voyage. 

One  who  has  an  interest  in  the  things  from  which  profits 
are  expected,  has  an  insurable  interest  in  the  profits. 

The  charterer  of  a  ship  has  an  insurable  interest  in  it  to 
the  extent  that  he  is  liable  to  be  damaged  by  its  loss. 

Civil  Code,  Sections  2659,  2660,  2661,  2662,  2663, 
2664,  2665,  3017. 

Section  255tt.— PERILS  OF  THE  SEA.— The  definition 
of  perils  of  the  sea,  covered  by  marine  insurance,  is  very 
extensive.  Perils  of  the  sea  are  all  perils,  losses,  and  mis- 
fortunes of  a  marine  character,  or  of  a  character  incident 
to  a  ship  as  such.  They  "include  storms  and  waves ;  rocks, 
shoals,  and  rapids ;  and  other  obstacles,  though  of  human 
origin,  such  as  floating  logs,  abandoned  vessels,  or  other 
derelicts  of  the  sea.  They  also  include  changes  in  climate ; 
the  confinement  necessary  at  sea ;  animals  peculiar  to  the 
sea ;  and  all  other  dangers  met  with  only  upon  the  sea.  An 
injury  resulting  from  a  defective  condition  of  the  ship  itself, 
or  negligent  operation  of  the  machinery,  is  not  a  peril  of 
the  sea.  Thus,  it  has  been  held  that  the  bursting  of  a  steam 
boiler  is  not  a  peril  of  the  sea,  as  understood  in  the  law 
of  marine  insurance.     A  peril  of  the  sea  is  one  associated 


BUSINESS   CONTRACTS   AND  I.EGAI.   OBLIGATIONS.  239 

with  the  peculiar  character  and  nature  of  the  ocean,  sug- 
gesting its  winds  and  storms  and  tides,  its  tempestuous 
waves,  its  obscuring  fogs,  and  other  dangers  inevitably 
incident  to  its  navigation. 

Section  255uu.— DUTY  OF  PARTIES.— In  effecting  a 
contract  of  marine  insurance,  it  is  the  duty  of  the  parties, 
the  insurer  and  the  insured,  to  reveal  to  each  other  all 
information  materially  affecting  the  risk;  unless  the  same 
facts  are  known  to  both,  or  which  in  the  exercise  of  ordinary 
care  either  party  has  the  means  of  ascertaining.  Neither 
party  can  withhold  from  the  other  any  information  pecu- 
liarly within  his  own  knowledge,  material  to  the  risk,  and 
he  is  required  to  state  the  exact  and  whole  truth  in  relation 
to  all  matters  about  which  he  makes  representations,  vol- 
untarily, or  in  answer  to  inquiries  made  of  him. 

(a) — Presumption  of  Knowledge  of  Loss. — A  person  in- 
sured by  a  contract  of  marine  insurance  is  presumed  to 
have  had  knowledge,  at  the  time  of  insuring,  of  a  prior 
loss  of  the  thing  insured ;  provided,  it  must  appear  that  the 
information  might  possibly  have  reached  him  in  the  usual 
mode  of  transmission  and  in  the  usual  time. 

(b) — Concealments  which  only  Affect  the  Risk  in  Ques- 
tion.— If  a  party  applying  for  a  policy  of  marine  insurance 
conceals  facts,  in  respect  to  any  of  the  following  matters, 
such  concealment  does  not  make  the  entire  contract  void, 
but  does  release  the  insurance  company  from  a  loss  result- 
ing from  the  risk  concealed:  (1)  The  national  character  of 
the  insured ;  (2)  The  liability  of  the  insured  property  to 
capture  and  detention;  (3)  The  liability  to  seizure  from 
breach  of  foreign  laws  of  trade ;  (4)  The  want  of  necessary 
documents;  and  (5)  The  use  of  false  and  simulated  papers. 

(c) — Effect  of  Intentional  False  Representations. — If  the 
party  applying  for  a  policy  intentionally  makes  false  repre- 
sentations about  any  matter  respecting  the  risk,  whether 


240  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

material  or  immaterial,  the  insurance  company  may  rescind 
the  entire  contract. 

Civil  Code,  Sections  2563,  2564,  2669,  2671,  2672. 
2676. 

Section  255vv.— WARRANTY  OF  SEAWORTHINESS. 

— In  every  marine  insurance  upon  a  ship,  or  freight,  or 
freightage,  or  upon  anything  which  is  the  subject  of  marine 
insurance,  a  warranty  is  implied  that  the  ship  is  seaworthy. 

(a) — Seaworthiness  Defined. — A  ship  is  seaworthy  when 
reasonably  fit  to  perform  the  services  and  to  encounter 
the  ordinary  perils  of  the  voyage  contemplated  by  the  par- 
ties to  the  policy.  A  warranty  of  seaworthiness  extends 
not  onl}^  to  the  condition  of  the  structure  of  the  ship  itself, 
but  requires  that  it  be  properly  laden,  and  provided  with  a 
competent  master,  a  sufficient  number  of  competent  officers 
and  seamen,  and  the  requisite  appurtenances  and  equip- 
ments, such  as  ballast,  cables,  anchors,  cordage,  sails,  food, 
water,  fuel,  lights,  and  other  necessary  or  proper  stores  and 
implements  for  the  voyage. 

(b) — Different  Degrees  of  Seaworthiness  at  Different 
Stages  of  the  Voyage. — Where  different  portions  of  the 
voyage  contemplated  by  a  policy  differ,  in  respect  to  the 
things  requisite  to  make  the  ship  seaworthy  therefor,  a 
warranty  of  seaworthiness  is  complied  with  if,  at  the  com- 
mencement of  each  part  of  the  voyage,  the  ship  is  seaworthy 
with  reference  to  that  portion. 

■(c) — Delay  in  Making  Repairs. — When  a  ship  becomes 
unseaworthy  during  the  voyage,  an  unreasonable  delay  in 
making  repairs  will  exonerate  the  insurance  company  from 
liability. 

(d) — Seaworthiness  for  Cargo. — A  ship  which  is  sea- 
worthy for  the  purpose  of  an  insurance  upon  the  ship  may 
nevertheless,  by  reason  of  being  unfitted  to  receive  cargo, 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  241 

be  unseaworthy  for  the  purpose  of  insurance  upon  the 
cargo.  To  be  seaworthy  for  cargo,  the  vessel  must  be 
properly  equipped,  with  competent  master  and  officers  and 
men,  and  all  necessary  and  proper  stores  and  implements 
for  the  voyage. 

(e) — Neutral  Papers. — Where  the  nationality  or  neutral- 
ity of  a  ship  or  cargo  is  expressly  warranted,  it  is  implied 
that  the  ship  will  carry  the  requisite  documents  to  show 
such  nationality  or  neutrality,  and  that  it  will  not  carry 
any  documents  which  cast  reasonable  suspicion  thereon. 

(f) — At  What  Time  Seaworthiness  Must  Exist. — An  im- 
plied warranty  of  seaworthiness  is  complied  with  if  the 
ship  be  seaworthy  at  the  time  of  the  commencement  of  the 
risk,  except  in  the  following  cases :  When  the  insurance  is 
made  for  a  specified  length  of  time,  the  implied  warranty 
is  not  complied  with  unless  the  ship  be  seaworthy  at  the 
commencement  of  every  voyage  she  may  undertake  during 
that  time ;  and,  when  the  insurance  is  upon  the  cargo,  which, 
by  the  terms  of  the  policy,  or  the  description  of  the  voyage, 
or  the  established  custom  of  the  trade,  is  to  be  transshipped 
at  an  intermediate  point,  the  implied  warranty  is  not  com- 
plied with,  unless  each  vessel  upon  which  the  cargo  is 
shipped  or  transshipped  be  seaworthy  at  the  commencement 
of  its  particular  voyage. 

Civil  Code,  Sections  2681,  2682,  2683,  2684,  2685, 
2686,  2687,  2688. 

Section  255ww.— DEVIATION  FROM  VOYAGE.— In 

order  to  hold  the  insurance  company  liable  in  the  event 
of  a  loss,  it  must  appear  that  no  material  deviation  from 
the  voyage  named  in  the  policy  was  made.  Where,  for 
instance,  a  cargo  of  wheat  was  insured  from  San  Francisco 
to  Hong  Kong,  the  transshipment  of  the  wheat  at  Yoko- 
hama was  a  deviation,  even  though  the  bill  of  lading  autho- 
rized it,  because  the  insurance  had  not  been  effected  with 
reference  to  that  port. 


242  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

(a) — What  Constitutes  Deviation. — Deviation  is  defined 
by  the  law  to  be  a  departure  from  the  course  of  the  voyage 
insured,  or  an  unreasonable  delay  in  pursuing  the  voyage, 
or  the  commencement  of  an  entirely  different  voyage. 
When  the  voyage  contemplated  by  a  policy  is  described 
by  the  places  of  beginning  and  ending,  the  voyage  insured 
is  one  which  conforms  to  the  course  of  sailing  fixed  by 
mercantile  usage  between  those  places.  If  the  course  of 
sailing  is  not  fixed  by  mercantile  usage,  the  voyage  insured 
by  a  policy  is  the  way  between  the  places  specified  which, 
to  a  master  of  ordinary  skill  and  discretion,  would  seem 
the  most  natural,  direct,  and  advantageous. 

(b) — Deviation  Exonerates  the  Insured. — An  insurer  is 
not  liable  for  any  loss  happening  subsequently  to  an  im- 
proper deviation.  But  a  deviation  from  the  voyage  con- 
templated by  the  policy  is  sometimes  proper,  and  when 
properly  made  will  not  exonerate  the  insurer.  A  deviation 
may  be  properly  made,  when  caused  by  circumstances  over 
which  neither  the  master  nor  the  owner  of  the  ship  had  any 
control ;  or,  when  necessary  to  comply  with  a  warranty,  or 
to  avoid  a  peril  of  the  sea,  whether  insured  against  or  not ; 
or,  when  made  in  good  faith  and  upon  reasonable  grounds 
of  belief  in  its  necessity  to  avoid  a  peril  to  ship  or  cargo ; 
or,  when  made  in  good  faith  for  the  purpose  of  saving  human 
life  or  relieving  another  vessel  in  distress.  Every  deviation 
not  specified  above  as  being  proper  is  pronounced  by  the 
law  to  be  improper,  and  when  improperly  made  will  re- 
lease the  insurer  from  liability. 

Civil  Code,  Sections  2692,  2693,  2694,  2695,  2696, 
2697. 

Section  255xx.— TOTAL    AND    PARTIAL    LOSS.— A 

loss  may  be  either  total  or  partial.  Every  loss  which  is  not 
total  is  partial.  A  total  loss  may  be  either  actual  or  con- 
structive. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  243 

(a) — Actual  Total  Loss. — An  actual  total  loss  is  caused 
by  a  total  destruction  of  the  thing  insured;  or  a  loss  by 
sinking,  or  by  being  broken  up ;  or  any  damage  to  the  in- 
sured property  which  renders  it  valueless  to  the  owner  for 
the  purposes  for  which  he  held  it ;  or  any  other  event  which 
entirely  deprives  the  owner  of  the  possession,  at  the  port 
of  destination,  of  the  property  insured.  An  actual  loss 
may  be  presumed  from  the  continued  absence  of  the  ship 
without  being  heard  of;  and  the  length  of  time  which  is 
sufificient  to  raise  the  presumption  depends  on  the  circum- 
stances of  each  case. 

Upon  an  actual  total  loss,  a  person  insured  is  entitled  to 
payment  without  notice  of  abandonment. 

(b) — Constructive  Total  Loss. — A  constructive  total  loss 
is  one  which  gives  to  a  person  insured  a  right  to  abandon 
the  property  by  declaring  to  the  insurer  that  he  relinquishes 
to  him  his  interest  in  the  thing  insured. 

(c) — Insurance  Against  Total  Loss. — An  insurance  con- 
fined in  terms  to  an  actual  total  loss  does  not  cover  a  con- 
structive total  loss,  but  covers  any  loss  which  necessarily 
results  in  depriving  the  insured  of  the  possession  at  the 
port  of  destination  of  the  entire  thing  insured. 

(d) — Liability  of  Insurer  When  Voyage  is  Broken  Up. — 

When  a  ship  is  prevented,  at  an  intermediate  port,  from 
completing  the  voyage,  by  the  perils  insured  against,  the 
master  must  make  every  exertion  to  procure,  in  the  same 
or  a  contiguous  port,  another  ship,  for  the  purpose  of  con- 
veying the  cargo  to  its  destination;  and  when  he  has  done 
so,  the  liability  of  a  marine  insurer  of  the  cargo  continues 
after  it  is  thus  reshipped.  And  in  addition,  a  marine  in- 
surer is  bound  for  damages,  expenses  of  discharging,  stor- 
age, reshipment,  extra  freightage,  and  all  other  expenses 
incurred  in  saving  the  cargo  reshipped,  up  to  the  amount 
insured. 

Civil  Code,  Sections  2701,  2702,  2703,  2704,  2705, 
2706,  2707,  2708,  2709,  2712. 


244  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

Section  255yy.— ABANDONMENT.— A  person  insured 
by  a  contract  of  marine  insurance  may  abandon  the  thing 
insured,  or  any  particular  portion  separately  valued  by 
the  policy  or  otherwise  separately  insured,  and  recover  for 
a  total  loss  thereof,  when  the  cause  of  the  loss  is  a  peril 
insured  against,  in  any  of  the  following  cases:  (1)  If  more 
than  half  in  value  is  actually  lost,  or  would  have  to  be  ex- 
pended to  recover  it  from  the  peril ;  (2)  If  the  property  is 
injured  to  such  an  extent  as  to  reduce  its  value  more  than 
one-half;  (3)  If  a  ship  is  insured,  and  the  contemplated 
voyage  cannot  be  performed  without  incurring  an  expense 
to  the  insured  of  more  than  half  the  value  of  the  ship,  or 
without  incurring  a  risk  which  a  prudent  man  would  not 
take  under  the  circumstances ;  (4)  If  the  cargo  or  freightage 
is  insured,  and  the  voyage  cannot  be  performed  nor  another 
ship  procured  by  the  master,  within  a  reasonable  time  and 
with  reasonable  diligence,  to  forward  the  cargo,  without 
incurring  an  expense  of  more  than  half  the  value,  or  with- 
out incurring  a  risk  which  a  prudent  man  would  not  take 
under  the  circumstances. 

Freightage  cannot  in  any  case  be  abandoned  unless  the 
ship  is  also  abandoned. 

An  abandonment  must  be  neither  partial  nor  conditional. 
An  abandonment,  to  give  the  insured  the  right  to  claim 
the  full  amount  of  insurance,  must  include  not  only  an 
intention  to  abandon,  but  also  a  relinquishment  to  all  right 
to  the  property.  The  insured  must  in  fact  and  in  good  faith 
abandon  the  ship ;  and  he  cannot  still  claim  ownership,  or 
continue  in  the  use  of  the  vessel,  after  he  has  given  notice 
of  abandonment  as  for  a  total  loss. 

An  abandonment  must  be  made  within  a  reasonable  time 
after  information  of  the  loss,  after  the  commencement  of 
the  voyage.  Where  the  information  upon  which  an  aban- 
donment has  been  made  proved  incorrect,  or  the  property 
insured  was  so  far  restored  when  the  abandonment  was 
made  that  there  was  then  in  fact  no  total  loss,  the  abandon- 
ment becomes  ineffectual. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  245 

An  abandonment  is  equivalent  to  a  transfer  by  the  insured 
of  his  interest  to  the  insurer,  with  all  the  chances  of  recov- 
ery and  indemnity.  An  acceptance  of  an  abandonment  is 
not  necessary  to  the  rights  of  the  insured.  But  the  accept- 
ance of  an  abandonment,  whether  express  or  implied,  is 
conclusive  upon  the  parties,  and  admits  the  loss  and  the 
sufficiency  of  the  abandonment. 

An  abandonment  once  made  and  accepted  is  irrevocable, 
unless  the  ground  upon  which  it  was  made  proves  to  be 
unfounded ;  as,  where  information  of  the  loss  of  a  ship  turns 
out  to  be  incorrect. 

On  an  accepted  abandonment  of  a  ship,  freightage  earned 
previous  to  the  loss  belongs  to  the  insurer  of  the  freightage ; 
but  freightage  subsequently  earned  belongs  to  the  insure.r 
of  the  ship. 

(a) — Refusal  to  Accept. — If  an  insurance  company  re- 
fuses to  accept  a  valid  abandonment,  it  is  liable  as  upon  an 
actual  total  loss,  deducting  from  the  amount  any  proceeds 
of  the  thing  insured  which  may  have  come  to  the  hands 
of  the  insured  person. 

(b) — Waiver  of  Formal  Abandonment. — If  a  marine  in- 
surance company  pays  for  a  loss  as  if  it  were  an  actual  total 
loss,  it  is  entitled  to  whatever  may  remain  of  the  property 
insured,  or  its  proceeds  or  salvage,  as  if  there  had  been  a 
formal  abandonment. 

(c) — Omission  to  Abandon. — If  a  person  insured  omits 
to  abandon,  he  may  nevertheless  recover  his  actual  loss. 

(d) — Notice  of  Abandonment. — Abandonment  is  made  by 
giving  notice  thereof  to  the  insurer,  which  may  be  made 
orally  or  in  writing.  A  notice  of  abandonment  must  be 
explicit,  and  must  specify  the  particular  cause  of  the  aban- 
donment ;   but  it  is  only  necessary  to  state  enough  to  show 


246  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

that  there  is  probable  cause  to  abandon,  and  the  notice 
need  not  be  accompanied  with  proof  of  interest  or  of  loss. 

Civil  Code,  Sections  2716,  2717,  2718,  2719,  2720, 
2721,  2722,  2724,  2725,  2727,  2728,  2729,  2730, 
2731,  2732. 

Section  255zz.— MEASURE  OF  INDEMNITY.— A  val- 
uation in  a  policy  of  marine  insurance  is  conclusive  between 
the  parties  thereto,  in  the  adjustment  of  either  a  partial  or 
total  loss,  if  the  insured  has  some  interest  at  risk,  and  there 
is  no  fraud  on  his  part;  except  that  when  a  thing  has  been 
hypothecated,  before  its  insurance,  and  without  the  knowl- 
edge of  the  person  actually  procuring  the  insurance,  he  may 
show  the  real  value.  But  a  valuation  fraudulent  in  fact 
entitles  the  insurer  to  rescind  the  contract. 

(a) — Partial  Loss. — A  marine  insurer  is  liable  upon  a 
partial  loss,  only  for  such  proportion  of  the  amount  insured 
by  him  as  the  property  lost  bears  to  the  value  of  the  whole 
interest  of  the  insured. 

(b) — Profits. — Where  profits  are  separately  insured  the 
insured  is  entitled  to  recover,  in  case  of  loss,  a  proportion 
of  such  profits,  equivalent  to  the  proportion  which  the  value 
of  the  property  lost  bears  to  the  value  of  the  whole. 

(c) — Valuation  Apportioned. — In  case  of  a  valued  policy 
on  freightage  or  cargo,  if  a  part  only  of  the  subject  is  ex- 
posed to  risk,  the  valuation  applies  only  in  proportion  to 
such  part. 

(d) — Valuation  Applied  to  Profits. — When  profits  are 
valued  and  insured  in  the  policy,  a  loss  of  them  is  con- 
clusively presumed  from  a  loss  of  the  property  out  of  which 
they  were  expected  to  arise,  and  the  valuation  in  the  policy 
fixes  their  amount. 

(e) — Estimating  Loss  Under  an  Open  Policy. — In  esti- 
mating a  loss  under  an  open  policy,  where  the  values  are 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  247 

not  fixed  by  the  contract,  the  following  rules  are  to  be 
observed:  (1)  The  value  of  a  ship  is  its  value  at  the  begin- 
ning of  the  risk,  including  all  articles  or  charges  which  add 
to  its  permanent  value,  or  which  are  necessary  to  prepare 
it  for  the  voyage  insured;  (2)  The  value  of  cargo  is  its 
actual  cost  to  the  insured,  when  laden  on  board,  or  when 
that  cost  cannot  be  ascertained,  its  market  value  at  the 
time  and  place  of  lading,  adding  the  charges  incurred  in 
purchasing  and  placing  it  on  board ;  but  this  must  be  with- 
out reference  to  any  losses  incurred  in  raising  money  for 
its  purchase,  or  any  drawback  on  its  exportation,  or  any 
fluctuations  of  the  market  at  the  port  of  destination,  or  any 
expenses  incurred  on  the  way  or  on  arrival ;  (3)  The  value 
of  freightage  is  the  gross  freightage,  exclusive  of  primage, 
without  reference  to  the  cost  of  earning  it ;  and  (4)  The 
cost  of  insurance  is  in  each  case  to  be  added  to  the  value 
thus  estimated. 

(f) — Arrival  of  Cargo  Damaged. — If  cargo  insured  against 
partial  loss  arrives  at  the  port  of  destination  in  a  damaged 
condition,  the  loss  of  the  insured  is  deemed  to  be  the  same 
proportion  of  the  value  which  the  market  price  at  that  port, 
of  the  goods  damaged,  bears  to  the  market  price  they  would 
have  brought  if  sound. 

(g) — Labor  and  Expenses. — A  marine  insurer  is  liable 
for  all  the  expense  attendant  upon  a  loss  which  forces  the 
ship  into  port  to  be  repaired;  and  where  it  is  agreed  that 
the  insured  may  perform  labor  for  the  recovery  of  the  prop- 
erty, the  insurer  is  liable  for  the  expense  incurred  thereby; 
such  expense  in  either  case  being  in  addition  to  a  total  loss, 
if  that  afterwards  occurs. 

(h) — One-third  New  for  Old. — In  case  of  a  partial  loss 
of  a  ship  or  its  equipments,  the  old  materials  are  to  be 
applied  towards  payment  for  the  new,  when  repairs  are 
made ;  and  whether  the  ship  is  new  or  old,  a  marine  insurer 
is  liable  for  only  two-thirds  of  the  remaining  costs  of  the 


248  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

repairs,  except  that  he  must  pay  for  anchors  and  cannon  in 
full,  and  for  sheathing  metal  at  a  depreciation  of  only  two 
and  one-half  per  cent  for  each  month  that  it  has  been  fas- 
tened to  the  ship. 

Civil  Code,  Sections  2736,  2737,  2738,  2739,  2740, 
2741,  2742,  2743,  2746. 

Section  255aaa.— GENERAL  AVERAGE.— A  carrier  by 
water  may,  when  in  case  of  extreme  peril  it  is  necessary 
for  the  safety  of  the  ship  or  cargo,  throw  overboard  or 
otherwise  sacrifice,  any  or  all  the  cargo  or  appurtenances 
of  the  ship.  Throwing  property  overboard  for  such  pur- 
pose is  called  jettison,  and  the  loss  incurred  thereby  is  called 
a  general  average  loss. 

A  jettison  must  begin  with  the  most  bulky  and  least  val- 
uable articles,  so  far  as  possible. 

A  jettison  can  be  made  only  by  authority  of  the  master 
of  the  ship,  except  in  case  of  his  disability  or  an  overruling 
necessity,  when  it  may  be  made  by  any  other  person. 

The  loss  incurred  by  a  jettison,  when  lawfully  made,  must 
be  borne  in  due  proportions  by  all  that  part  of  the  ship, 
appurtenances,  freightage,  and  cargo,  for  the  benefit  of 
which  the  sacrifice  is  made,  as  well  as  by  the  owner  of  the 
property  sacrificed.  The  proportions  in  which  a  general 
average  loss  is  to  be  borne  must  be  ascertained  by  an  ad- 
justment, in  which  the  owner  of  each  separate  interest  is 
to  be  charged  with  such  proportion  of  the  value  of  the 
thing  lost  as  the  value  of  his  part  of  the  property  affected 
bears  to  the  value  of  the  whole.  An  adjustment  made  at 
the  end  of  the  voyage,  if  valid  there,  is  valid  everywhere. 

In  estimating  values  for  the  purpose  of  a  general  average, 
the  ship  and  appurtenances  must  be  valued  .as  at  the  end 
of  the  voyage,  the  freightage  at  one-half  the  amount  due 
on  delivery,  and  the  cargo  as  at  the  time  and  place  of  its 
discharge;  adding,  in  each  case,  the  amount  made  good 
by  contribution. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  •  249 

The  owner  of  things  stowed  on  deck,  in  case  of  their  jet- 
tison, is  entitled  to  the  benefit  of  a  general  average  con- 
tribution only  in  case  it  is  usual  to  stow  such  things  on 
deck  upon  such  voyage. 

Where  a  person  insured  by  a  contract  of  marine  insur- 
ance has  a  demand  against  others  for  a  contribution,  by 
reason  of  a  general  average,  he  may  claim  the  whole  loss 
from  the  insurance  company,  subrogating  it  to  his  own 
right  to  contribution.  But  no  such  claim  can  be  made  upon 
the  insurer  after  the  separation  of  the  interests  liable  to 
contribution,  nor  when  the  insured,  having  the  right  and 
opportunity  to  enforce  contribution  from  others,  has  neg- 
lected or  waived  the  exercise  of  that  right. 

Civil  Code,  Sections  2148,  2149,  2150,  2151,  2152, 
2153,  2154,  2155,  2745. 

Section  255bbb.  —  PERISHABLE    GOODS.  —  What  is 

known  as  the  memorandum  clause  in  policies  of  marine 
insurance,  whereby  the  insurance  company  is  exempted 
from  liability  for  any  partial  loss  of  goods  of  a  perishable 
nature,  is  intended  to  apply  only  where  goods  are  perish- 
able and  there  is  difficulty  in  proving  whether  the  loss  oc- 
curred from  the  inherent  quality  of  the  goods  or  from  a 
peril  of  the  sea. 

Section  255ccc.— ACTS  OF  MASTER  AND  CREW.— 

The  insurance  company  will  be  liable  notwithstanding  a 
lack  of  skill,  or  even  negligence,  on  the  part  of  the  master 
or  crew.  To  relieve  the  company  from  liability  because  of 
acts  of  the  master  or  crew,  there  must  be  want  of  good 
faith  and  honesty  of  purpose  on  their  part.  If  a  ship  should 
be  run  on  shore  by  the  crew  and  wrecked,  through  being 
placed  in  a  dangerous  position  by  reason  of  negligence 
or  unskilfulness  of  the  crew,  this  does  not  exempt  the  com- 
pany from  liability,  where  it  appears  that  the  crew  were 
not  acting  in  bad  faith  and  with  dishonest  purpose  to  cause 
loss. 


250  .  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Marine  Insurance  Agents 

Section  255ddd.  —  PRINCIPLES  OF  AGENCY.  —  The 
principles  of  agency  stated  under  the  head  of  "Fire  Insur- 
ance Agents"  apply  equally  to  agents  of  marine  insurance 
companies.  They  bind  their  principals  in  the  same  way ; 
their  representations  as  to  the  business  entrusted  to  them 
have  the  same  effect ;  they  may  waive  conditions  of  the 
contract  to  the  same  extent ;  and  as  there  is  no  special  rule 
applying  particularly  to  marine  insurance  agents,  it  will 
be  sufficient,  as  to  them,  to  refer  to  the  subject  of  "Fire 
Insurance  Agents." 

Building  Contracts 

Section  256.— CONTRACT  MUST  BE  IN  WRITING. 

— In  California,  all  building  contracts  must  be  in  writing 
when  the  amount  agreed  to  be  paid  to  the  contractor  ex- 
ceeds one  thousand  dollars. 

Code  of  Civil  Procedure,  Section  1183. 

Section  257.— CONTRACT  OR  MEMORANDUM  TO 
BE  RECORDED. — The  contract  itself,  or  a  memorandum 
of  it,  must  be  filed  for  record  in  the  office  of  the  County 
Recorder  of  the  county  or  city  and  county  where  the  prop- 
erty is  situated,  before  the  work  is  commenced.  Whether 
the  contract  or  a  memorandum  of  it  be  filed  for  record,  it 
should  contain  the  names  of  all  the  parties  to  the  contract; 
a  description  of  the  property ;  a  statement  of  the  character 
of  the  work  to  be  done;  the  total  amount  to  be  paid  under 
the  contract;  and  the  amounts  of  all  partial  payments,  and 
the  times  when  payments  shall  be  due  and  payable.  All 
contracts  which  are  not  recorded,  in  the  manner  stated 
above,  are  declared  by  the  law  of  California  to  be  wholly 
void,  and  no  recovery  can  be  had  upon  the  contract  by 
either  party  to  it.  The  law  also  provides  that  after  the 
expiration  of  two  years  from  the  date  of  filing  of  notice  of 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  251 

completion  of  any  building  or  improvement,  the  County 
Recorder  may  return  the  contract,  plans,  and  specifications 
to  the  person  filing  the  same,  unless  he  is  notified  in  writing 
by  some  person  claiming  an  interest  in  the  contract  or  prop- 
erty not  to  do  so.  If  no  notice  of  completion  has  been  filed, 
the  Recorder  may,  after  the  expiration  of  two  years,  destroy 
the  contract,  plans,  and  specifications  then  on  file  in  his 
office.  Two  years  from  the  date  of  the  new  law,  the  Re- 
corder may  destroy  all  contracts,  plans,  and  specifications 
which  have  been  in  his  office  five  years.  (Act  of  the  Leg- 
islature, approved  February  15,  1905.) 

Code  of  Civil  Procedure,  Section  1183. 


Section   258.— RECORDER'S   FEE.— The   law  provides 
that  the  County  Recorder  shall  receive  a  fee  of  one  dollar 
for  filing  the  contract  or  memorandum  for  record. 
Code  of  Civil  Procedure,  Section  1183. 


Section  259.— TIME  OF  PAYMENTS.— The  building 
contract  must  not  make  any  part  of  the  contract  price  pay- 
able before  the  work  is  commenced;  but  the  contract  price 
must,  by  the  terms  of  the  contract,  be  made  payable  in 
installments  at  specified  times  after  the  commencement  of 
the  work,  or  on  completion  of  the  whole  work. 
Code  of  Civil  Procedure,  Section  1184. 

Section  260.— LAST  PAYMENT.— The  law  provides 
that  at  least  twenty-five  per  cent  of  the  whole  contract  price 
must  be  made  payable  at  least  thirty-five  days  after  the  final 
completion  of  the  contract.  This  is  done  to  protect  the 
liens  of  laborers,  mechanics,  and  materialmen,  and  to  pro- 
tect the  owner  by  giving  sufficient  time  for  all  liens  to  come 
in  before  the  final  payment  is  to  be  made  by  him. 
Code  of  Civil  Procedure,  Section  1184. 


252  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

Section  261.— CONTRACTOR'S  BOND.— The  Legisla- 
ture of  1893  passed  a  law,  which  provided  that  every  con- 
tract filed  for  record  should  be  accompanied  by  a  bond  in 
an  amount  equal  to  at  least  twenty-five  per  cent  of  the 
contract  price.  This  law  also  provided  that  the  bond 
should  be  made  to  apply  to  the  benefit  of  any  and  all  per- 
sons performing  labor  or  furnishing  materials  to  the  con- 
tractor, and  that  such  persons  might  recover  the  value 
of  labor  or  materials  furnished  from  the  bondsmen,  not 
exceeding  the  amount  of  the  bond,  with  costs  and  attor- 
ney fees ;  and  the  law  also  provided,  that  any  failure  to 
file  the  bond  would  make  the  owner  and  contractor  both 
liable  in  damages  to  any  and  all  materialmen,  laborers, 
and  sub-contractors  entitled  to  liens  upon  the  property. 
The  law  was  generally  recognized,  and  bonds  were  filed 
under  it,  ever  since  its  passage  by  the  Legislature  in  1893. 
But  the  Supreme  Court  of  California  has  decided  that  the 
law  is  unconstitutional  and  void.  In  San  Francisco,  Wm. 
Shaunessy  sued  the  American  Surety  Co.  on  a  contractor's 
bond,  filed  under  the  law.  Shaunessy  was  a  material-man 
who  furnished  materials  to  the  contractor.  The  Supreme 
Court  decided  that  the  law  requiring  the  bond  is  unconsti- 
tutional, and  the  bond  is  void.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  Wm.  Shaunessy  vs.  the 
American  Surety  Co.,  which  decision  is  printed  in  Volume 
23  of  California  Decisions,  page  800.) 

Section  262.— MATERIALS  FURNISHED  CON- 
TRACTOR EXEMPT  FROM  EXECUTION.— Mate- 
rials furnished  for  use  and  about  to  be  used  in  the  con- 
struction, alteration,  or  repair  of  any  building  cannot  be 
taken  under  attachment  or  execution,  to  enforce  any  debt 
due  by  the  purchaser  of  such  materials,  except  a  debt  due 
for  the  purchase  price  of  the  materials. 

Code  of  Civil  Procedure,  Section  1196. 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  253 

Section  263.— FORM  OF  BUILDER'S  CONTRACT.— 

The  following  is  a  form  of  builder's  contract,  which  is  in 
common  use  in  this  State,  and  which  meets  the  require- 
ments of  the  law  in  its  terms : — 

ARTICLES  OF  AGREEMENT,  Made  this  ....  day  of 
,  190.  .,  Between   


of  the  ,  County  of  ,  State  of  Cali- 
fornia, the  party  of  the  first  part,  and 

of  the ,  County  of ,  State 

of  California,  the  party  of  the  second  part. 

Witnesseth : — The  party  of  the  first  part  will  be  herein- 
after designated  as  the  Owner,  and  the  party  of  the  second 
part  as  the  Contractor,  singular  number  only  being  used ; 
and  the  word  Architect  used  herein  in  the  singular  shall 
include  the  plural,  and  the  masculine  the  feminine. 

FIRST. — The    Contractor    agrees,    within    the    space    of 

working  days  from  and  after  the  date 

hereof,  to  furnish  the  necessary  labor  and  materials,  in- 
cluding tools,  implements,  and  appliances  required,  and 
perform  and  complete  in  a  workmanlike  manner  all  the.  . . . 


(Here   insert   description   of  work   to  be   done,   under   the 

contract,  whether  woodwork,  plastering,  plumbing,  iron- 
work, etc.) 

and  other  works  shown  and  described  in  and  by,  and  in 
conformity  with,  the  pFans,  drawings,  and  specifications 
for  the  same  made  by  ,  the  author- 
ized Architect  employed  by  the  Owner,  and  which  are 
signed  by  the  parties  hereto. 

SECOND. — Said  Architect  shall  provide  and  furnish  to 
the  Contractor  all  details  and  working  drawings  necessary 
to  properly  delineate  said  plans  and  specifications ;  and  the 
work  is  to  be  done  and  the  materials  furnished  in  accord- 
ance therewith  under  the  direction  and  supervision  and 
subject  to  the  approval  of  said  Architect,  or  a  Superintend- 
ent selected  and  agreed  upon  by  the  parties  hereto,  within 
a  fair  and  equitable  construction  of  the  true  intent  and 
meaning  of  said  plans  and  specifications. 


254  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

THIRD. — The  time  during  which  the  Contractor  is  de- 
layed in  said  work  by  the  acts  or  neglects  of  the  Owner  or 
his  employees,  or  those  under  him  by  contract  or  otherwise, 
or  by  the  acts  of  God  which  the  Contractor  could  not  have 
reasonably  foreseen  and  provided  for,  or  by  stormy  and 
inclement  weather  which  delays  the  work,  or  by  any  strikes, 
boycotts,  or  like  obstructive  action  by  employee  or  labor 
organizations,  or  by  lock-outs  or  other  defensive  action  by 
employers,  whether  general,  or  individual,  or  by  organiza- 
tions of  employers,  shall  be  added  to  the  aforesaid  time  for 
completion. 
FOURTH.— Said    building    


to  be  erected  upon  a  lot  of  land  situated  in  . . 

,   County  of    

State  of  California,  and  described  as  follows 


(Here  insert  description  of  the  lot  of  land.) 


FIFTH. — The  Owner  agrees,  in  consideration  of  the  per- 
formance of  this  agreement  by  the  Contractor,  to  pay,  or 
cause  to  be  paid,  to  the  Contractor,  his  legal  representative 

or  assigns,  the  5um  of 

(Here  insert  contract  price.) 

Dollars,  in 

United  States  Gold  Coin,  at  the  times  and  in  the  manner 

following,  to-wit :    Dollars  when  the 

foundation  is  completed  and  the  framing  materials  on  the 

ground  and  the  frame  up ; Dollars 

when  the  roof  and  rustic  are  on ; Dollars 

when  the  plastering  is  completed ;  and 

Dollars  thirty-five  days  after  the  completion  of  the  build- 
ing and  acceptance  by  the  Owner ; 

(Here  insert  any  other  condition  as  to  payment  desired.) 

Provided,  that  when  each  payment  or  installment  shall  be- 
come due,  and  in  the  final  completion  of  the  work,  certifi- 
cates in  writing  shall  be  obtained  from  the  said  Architect, 
stating  that  the  payment  or  installment  is  due  or  work  com- 
pleted, as  the  case  may  be,  and  the  amount  then  due ;  and 


BUSINESS   CONTRACTS   AND  I.EGAL   OBLIGATIONS.  255 

the  said  Architect  shall  at  said  times  deliver  said  certificates 
under  his  hand  to  the  Contractor,  or,  in  lieu  of  such  cer- 
tificates shall  deliver  to  the  Contractor  in  writing  under 
his  hand,  a  just  and  true  reason  for  not  issuing  the  certifi- 
cates, including  a  statement  of  the  defects,  if  an}^  to  be 
remedied,  to  entitle  the  Contractor  to  the  certificate  or 
certificates.  And  in  the  event  of  the  failure  of  the  Archi- 
tect to  furnish  and  deliver  said  certificates,  or  any  of  them, 
or  in  lieu  thereof  the  writing  aforesaid,  within  three  days 
after  the  times  aforesaid,  and  after  demand  therefor  made 
in  writing  by  the  Contractor,  the  amount  which  may  be 
claimed  to  be  due  by  the  Contractor,  and  stated  in  the  said 
demand  made  by  him  for  the  certificate,  shall,  at  the  ex- 
piration of  said  three  days,  become  due  and  payable,  and 
the  Owner  shall  be  liable  and  bound  to  pay  the  same  on 
demand. 

In  case  the  Architect  delivers  the  writing  aforesaid  in 
lieu  of  the  certificate,  then  a  compliance  by  the  Contractor 
with  the  requirements  of  said  writing  shall  entitle  the  Con- 
tractor to  the  certificate. 

SIXTH. — For  any  delay  on  the  part  of  the  Owner  in 
making  any  of  the  payments  or  installments  provided  for 
in  this  contract  after  they  shall  become  due  and  payable, 
he  shall  be  liable  to  the  Contractor  for  any  and  all  damages 
which  the  latter  may  suffer;  and  such  delay  shall,  in  addi- 
dition,  operate  as  an  additional  extension  of  the  time  for 
completion  aforesaid  for  the  length  of  time  of  such  delay. 
And  such  delay,  if  for  more  than  five  days  after  the  date 
when  said  payments  or  installments  shall  have  respectively 
become  due  and  payable,  as  in  this  agreement  provided, 
shall,  at  the  option  of  the  Contractor,  be  held  to  be  pre- 
vention by  the  Owner  of  performance  of  this  contract  by 
the  Contractor. 

SEVENTH. — The  specifications  and  drawings  are  in- 
tended to  cooperate,  so  that  any  work  exhibited  in  the 
drawings  and  not  mentioned  in  the  specifications,  or  vice 
versa,  are  to  be  executed  the  same  as  if  both  mentioned  in 
the  specifications  and  set  forth  in  the  drawings,  to  the  true 
intent  and  meaning  of  the  said  drawings  and  specifica- 
tions when  taken  together.  But  no  part  of  said  speci- 
fications that  is  in  conflict  with  any  portion  of  this  agree- 
ment, or  that  is  not  actually  descriptive  of  the  work  to 
be  done  thereunder,  or  of  the  manner  in  which  the  said 


256  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

work  is  to  be  executed,  shall  be  considered  as  any  part 
of  this  agreement,  but  shall  be  utterly  null  and  void. 

EIGHTH. — Should  the  Owner  or  the  Architect  at  any 
time  during  the  progress  of  the  work,  request  any  altera- 
tions or  deviations  in,  additions  to,  or  omissions  from,  this 
contract,  or  the  plans  or  specifications,  either  of  them  shall 
be  at  liberty  to  do  so,  and  the  same  shall  in  no  way  affect 
or  make  void  this  contract ;  but  the  amount  thereof  shall 
be  added  to,  or  deducted  from,  the  amount  of  the  contract 
price  aforesaid,  as  the  case  may  be,  by  a  fair  and  reasonable 
valuation.  And  this  contract  shall  be  held  to  be  completed 
when  the  work  is  finished  in  accordance  with  the  original 
plans,  as  amended  by  such  changes,  whatever  may  be  the 
nature  or  extent  thereof. 

NINTH. — The  rule  of  practice  to  be  observed  in  the  ful- 
filment of  the  last  foregoing  paragraph  (eighth)  shall  be 
that,  upon  the  demand  of  either  the  Contractor,  Owner,  or 
Architect,  the  character  and  valuation  of  any  or  all  changes, 
omissions,  or  extra  work,  shall  be  agreed  upon  and  fixed  in 
writing,  signed  by  the  Owner,  Architect,  and  the  Contractor, 
prior  to  execution. 

TENTH. — Should  any  dispute  arise  between  the  Owner 
and  Contractor,  or  between  the  Contractor  and  Architect, 
respecting  the  true  construction  of  the  drawings  and  speci- 
fications, the  same  shall,  in  the  first  instance,  be  decided 
by  the  Architect ;  but  should  either  of  the  parties  hereto 
be  dissatisfied  with  the  justice  of  such  decision,  or  should 
any  dispute  arise  between  the  parties  hereto  respecting 
the  valuation  of  the  extra  work,  work  done,  or  work  omit- 
ted, the  disputed  matter  shall  be  referred  to,  and  decided  by, 
two  competent  persons  who  are  experts  in  the  business  of 
building, — one  to  be  selected  by  the  Owner  or  Architect, 
and  the  other  by  the  Contractor ;  and,  in  case  they  cannot 
agree,  these  two  shall  select  an  umpire,  and  the  decision 
of  any  two  of  them  shall  be  binding  on  all  parties. 

ELEVENTH. — Should  the  Contractor  fail  to  complete 
this  contract,  and  the  works  provided  for  therein,  within 
the  time  fixed  for  such  completion,  due  allowance  being 
made  for  the  contingencies  provided  for  herein,  he  shall 
become  liable  to  the  owner  for  all  loss  and  damages  which 
the  latter  may  suffer  on  account  thereof,  but  not  to  exceed 

the  sum  of  $ per  day  for  each  day  said  work  shall 

remain  uncompleted  beyond  such  time  for  completion. 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  257 

TWELFTH. — In  case  said  work  herein  provided  for 
should,  before  completion,  be  wholly  destroyed  by  fire, 
defective  soil,  earthquake,  or  other  act  of  God  which  the 
Contractor  could  not  have  reasonably  foreseen  and  pro- 
vided for,  then  the  loss  occasioned  thereby  shall  be  sus- 
tained by  the  Owner  to  the  extent  that  he  has  paid  install- 
ments thereon,  or  that  may  be  due  under  the  fifth  clause 
of  this  contract;  and  the  loss  occasioned  thereby,  and  to 
be  sustained  by  the  Contractor,  shall  be  for  the  uncom- 
pleted portion  of  said  work  upon  which  he  may  be  engaged 
at  the  time  of  the  loss,  and  for  which  no  payment  is  yet 
due  under  said  fifth  clause  of  this  contract. 

In  the  event  of  a  partial  destruction  of  said  work  by  any 
of  the  causes  above  named,  then  the  loss  to  be  sustained 
by  the  Owner  shall  be  in  the  proportion  that  the  amounts 
of  installments  paid  or  due  bears  to  the  total  amount  of 
work  done  and  materials  furnished,  estimated  according  to 
said  contract  price,  and  the  balance  of  said  loss  to  be 
sustained  by  the  Contractor. 

THIRTEENTH. — The  payment  of  the  progress  pay- 
ments by  the  Owner  shall  not  be  construed  as  an  absolute 
acceptance  of  the  work  done  up  to  the  time  of  such  pay- 
ments; but  the  entire  work  is  to  be  subjected  to  inspection 
and  approval  of  the  Architect  or  Superintendent  at  the  time 
when  it  shall  be  claimed  by  the  Contractor  that  the  con- 
tract and  works  are  completed ;  but  the  Architect  or  Su- 
perintendent shall  exercise  all  reasonable  diligence  in  the 
discovery,  and  report  to  the  Contractor,  as  the  work  pro- 
gresses, of  materials  and  labor  which  are  not  satisfactory 
to  the  Architect  or  Superintendent,  so  as  to  avoid  unneces- 
sary trouble  and  cost  to  the  Contractor  in  making  good 
defective  parts. 

FOURTEENTH. — Should  the  Contractor,  at  any  time 
during  the  progress  of  the  work,  refuse  or  neglect,  without 
the  fault  of  the  Owner,  Architect,  or  Superintendent,  to 
supply  a  sufficiency  of  materials  or  workmen  to  complete 
the  contract  within  the  time  limited  herein,  or  any  lawful 
extension  thereof,  for  a  period  of  more  than  three  days  after 
having  been  notified  by  the  owner  in  writing  to  furnish 
the  same,  the  Owner  shall  have  power  to  furnish  and  pro- 
vide said  materials  or  workmen  to  finish  the  said  work ; 
and  the  reasonable  expenses  thereof  shall  be  deducted  from 
the  amount  of  the  contract  price. 


258  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

IN  WITNESS  WHEREOF,  the  said  parties  to  these 
presents  have  hereunto  set  their  hands  and  seals,  the  day 
and  year  first  above  written. 

(Seal.) 

(Seal.) 

Section  264.— REFERENCE  TO  PLANS  AND  SPECI- 
FICATIONS IN  CONTRACT.— Where  a  building  con- 
tract provides  that  the  contractor  shall  do  the  work  ac- 
cording to  certain  drawings  and  specifications,  which  are 
referred  to  in  the  contract  as  "hereto  annexed,"  the  draw- 
ings and  specifications  are  an  essential  part  of  the  contract, 
and  until  they  are  annexed  the  contract  is  not  complete; 
and  it  is  essential  that  the  drawings  and  specifications 
referred  to  in  the  contract  should  be  filed  in  the  Recorder's 
office,  together  with  the  contract,  and  a  failure  to  file  them 
destroys   the   validity   of   the   contract. 

Section  265.— WHEN  CONTRACT  WHOLLY  VOID. 

— The  failure  to  file  the  contract,  or  a  memorandum  con- 
taining the  statements  required  by  the  law  above  men- 
tioned, in  the  office  of  the  County  Recorder,  renders  the 
contract  wholly  void  for  all  purposes.  It  cannot  then  be 
the  basis  of  a  recovery  by  the  contractor  against  the  owner, 
nor  can  it  be  looked  to  for  the  purpose  of  determining  the 
amount  for  which  the  owner  is  liable,  or  when  payment 
is  to  be  made.  In  any  action  against  him  by  a  laborer 
or  material-man,  their  rights  will  be  determined  by  other 
rules,  and  irrespective  of  any  provision  of  such  contract. 

Section  266.— DEFECTS  WHICH  WILL  NOT  MAKE 
CONTRACT  VOID.— The  law  of  California  does  not  make 
a  contract  void  for  any  other  defect  or  default  than  a  failure 
to  record  it.  The  contract  is  not  rendered  void  by  the  fact 
that  the  final  payment  is  specified  to  become  due  thirty 
days  after  the  completion  of  the  building,  instead  of  thirty- 
five  days,  as  provided  by  law ;  nor  is  the  contract  rendered 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  259 

void  by  the  fact  that  the  property  or  lot  is  erroneously 
described;  and,  indeed,  the  statute  only  declares  the  con- 
tract void  for  one  reason,  failure  to  file  it,  or  a  memorandum 
of  it,  in  the  office  of  the  County  Recorder. 

Section  267.— TWENTY-FIVE  PER  CENT  RE- 
SERVED.— The  owner  of  a  building,  after  its  completion 
by  the  contractor,  must  reserve  in  his  hands  twenty-five 
per  cent  of  the  whole  contract  price  for  thirty-five  days, 
for  payment  to  the  contractor  or  lien-claimant,  whichever 
is  entitled  to  it;  and  if  there  is  a  contest  between  the  con- 
tractor and  any  person  who  has  filed  a  lien,  the  owner 
should  deposit  the  money  in  court,  to  be  awarded  to  the 
party  entitled  to  it. 

A  building  contract  which  omits  to  provide  for  the  final 
payment  of  twenty-five  per  cent  of  the  contract  price  at 
least  thirty-five  days  after  completion  thereof  is  void  as  to 
all  persons  furnishing  material  or  performing  labor  upon 
the  building.  (Decided  by  the  District  Court  of  Appeals,  in 
the  case  of  Stimson  Mill  Co.  vs.  M.  J.  Nolan,  which  decision 
is  printed  in  Volume  4,  California  Appellate  Decisions,  page 
731.) 

Section  268.— BUILDING  CONTRACT  WHERE 
PRICE  DOES  NOT  EXCEED  ONE  THOUSAND 
DOLLARS. — A  building  contract,  where  the  price  does 
not  exceed  one  thousand  dollars,  and  where  the  work  is 
to  be  done  within  a  year,  may  be  entered  into  orally.  The 
law  relative  to  the  mode  of  payment  of  the  contract  price 
of  a  building  does  not  apply  to  such  contracts  when  the 
price  does  not  exceed  one  thousand  dollars,  but  applies  only 
to  such  contracts  when  the  price  exceeds  that  sum.  f«Io 
part  of  the  contract  price  under  a  building  contract,  when 
the  price  does  not  exceed  one  thousand  dollars,  need  be 
withheld  by  the  owner,  and  he  may  pay  the  whole  of  it  to 
the     contractor    before    the    commencement     or     after     the 


260  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

completion  of  the  work,  unless  he  is  notified  not  to  do  so  by- 
some  person  who  claims  a  lien. 

Section  269.— CONTRACT  OF  MINOR.— A  minor  is 
not  bound  by  his  contract  for  the  erection  or  repair  of  a 
building.  A  minor  is  only  bound  by  his  contracts  in  cer- 
tain cases,  which  form  exceptions  to  the  general  rule  that 
minors  cannot  make  contracts,  in  which  the  erection  of  a 
building  is  not  included. 

Section  270.— PRICE  WHERE  CONTRACTOR 
ABANDONS  THE  WORK.— If  the  contract  for  the  erec- 
tion and  completion  of  a  building  is  entire,  and  the  con- 
tractor abandons  the  work  before  it  is  completed,  he  loses 
the  right  which  he  would  have  had  to  the  full  compensation 
agreed  on. 

Section    271.  — OWNER     PREVENTING     WORK. — 

Where  a  contractor  has  proceeded  to  construct  a  building 
of  the  material  and  in  the  manner  substantially  as  provided 
for  in  the  contract,  and  the  owner  before  completion  of 
the  contract,  and  without  cause,  and  in  violation  of  the 
contract,  refuses  to  allow  the  contractor  to  go  on,  and 
takes  possession  of  the  building,  and  appropriates  to  his 
own  use  the  materials  on  hand  for  the  construction  of  the 
building,  the  contractor  is  entitled  to  treat  the  contract  as 
rescinded.  And  in  other  circumstances,  where  acts  of  simi- 
lar character  by  the  owner  prevent  the  contractor  from 
completing  the  work  as  agreed  upon,  the  contractor  may 
look  upon  the  contract  as  rescinded.  In  all  such  cases, 
the  contractor  may  recover  from  the  owner  the  reasonable 
value  of  the  work  performed  and  material  furnished  by  him. 

Section  272.— NOTICE  TO  OWNER.— The  law  lequircs 
recording  of  a  building  contract,  where  the  price  exceeds 
one  thousand  dollars,  as  a  condition  of  its  validity,  and 
forbids  any  payment  by  the  owner  to  the  contractor  as 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  261 

against  material-men  and  laborers,  unless  the  contract  is 
recorded.  No  notice  to  the  owner  to  stop  payments  to  the 
contractor  is  required,  unless  there  is  a  valid  contract.  If 
the  contract  is  not  recorded,  it  is  void,  and  no  notice  to 
the  owner  is  necessary. 

Section  273.— ACCEPTANCE  BY  AGENT.— Where  the 
parties  to  a  building  contract  agree  upon  an  agent,  who  is 
authorized  to  accept  or  reject  the  work  when  completed, 
his  acceptance  is  binding  upon  both  parties ;  and  where 
the  agent  acts  in  good  faith,  and  without  practicing  any 
fraud  upon  either  party  to  the  contract,  his  acceptance  of 
the  work  is  final  and  conclusive. 

Section  274.— BREACH  OF  CONTRACT  BY  OWNER. 

— Where  a  contractor  agrees  to  perform  certain  work  and 
furnish  certain  materials  for  the  construction  of  a  building, 
and  after  furnishing  a  portion  of  the  materials  the  owner 
of  the  building  stops  the  work,  and  fails  to  receive  any 
further  material  from  the  contractor,  the  owner  is  liable 
to  the  contractor  in  damages.  The  contractor  may  recover 
from  the  owner  as  damages  all  the  profits  he  would  have 
made  if  the  work  had  gone  on  and  the  materials  had  been 
received  from  himi. 

Section  275.— AGREEMENT  AS  TO  EXTRA  WORK. 

— Where  a  building  contract  provides  that  "no  extra  work 
is  to  be  paid  for  except  by  contract  in  writing,"  the  parties 
may  verbally  rescind  this  provision,  at  any  time,  and  agree 
to  alterations.  Where  alterations  are  made  by  agreement, 
written  or  verbal,  the  original  contract  is  not  set  aside,  but 
is  only  modified  to  the  extent  of  the  change  in  the  plans. 

Section  276.— LOSS  BY  FIRE  BEFORE  COMPLE- 
TION.— Where,  by  the  terms  of  a  building  contract,  the 
third  and  last  installments  of  payment  for  the  work  are 
conditioned  upon  its  completion  according  to  agreement 


262  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

and  specifications,  such  installments  cannot  be  recovered 
where  the  whole  work  is  consumed  by  fire,  without  apparent 
fault  of  either  party,  before  its  completion.  A  question 
will  arise  under  such  circumstances  as  to  whether  the 
building  was  substantially  completed  at  the  time  of  the 
fire.  In  a  suit  between  a  contractor  and  owner,  at  San 
Francisco,  the  Supreme  Court  of  California  decided  that 
where  it  was  proved  that  no  part  of  the  second  coat  of 
paint  required  by  the  contract  had  been  put  on ;  that  the 
work  bench  of  the  carpenters  and  the  paint  for  the  second 
coat  were  in  the  building  at  the  time  of  the  fire ;  that  two 
of  the  doors  were  unhung,  and  no  fastenings  put  on  the 
front  door  or  windows;  and  that  the  house  had  not  been 
delivered  nor  accepted;  the  building  was  not  substantially 
completed  before  the  fire.  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  Clark  vs.  Collier,  which  decision 
is  printed  in  Volume  100  of  the  California  Reports,  page 
256.)  So  many  things  were  lacking  in  the  case  quoted, 
that  it  would  have  been  surprising  indeed  if  the  Supreme 
Court  had  decided  that  the  work  was  substantially  per- 
formed ;  and  in  all  cases  the  question,  whether  a  contract 
has  been  substantially  performed  before  a  fire,  will  depend 
upon  the  terms  of  the  contract  and  a  reasonable  considera- 
tion of  the  work  done  and  remaining  to  be  done. 

Section  277.— CONTRACT  PROVIDING  FOR  ARBI- 
TRATION.— Where  a  building  contract  provides  for  the 
arbitration  of  any  matter,  the  contractor  must  first  demand 
an  arbitration  before  he  can  sue  for  his  pay  for  the  work 
included  in  the  provision  for  arbitration.  For  instance, 
the  contractor  is  not  entitled  to  recover  for  extra  work,  or 
for  materials  furnished,  when  the  contract  provides  that 
claims  for  such  extras  must  be  submitted  to  arbitration, 
and  the  contractor  has  made  no  offer  or  request  to  arbi- 
trate. The  contractor  must  oflfer  in  good  faith  to  arbitrate, 
and  if  the  owner  refuses,  he  may  then  sue  for  and  recover 


BUSINESS    CONTRACTS   AND    LEGAL    OBLIGATIONS,  263 

■  I 

the  value  of  the  extra  work,  regardless  of  the  arbitration 
clause. 

Section  278.— SUIT  FOR  REASONABLE  VALUE 
OF  WORK  AND  MATERIALS.— Although  a  written 
contract,  required  by  the  law  where  the  contract  price  is 
for  more  than  one  thousand  dollars,  was  not  recorded,  and 
is  therefore  void  for  all  purposes,  yet  the  contractor  is  not 
to  go  without  his  money.  He  may  sue  the  owner  for  the 
reasonable  value  of  the  labor  and  materials  furnished,  and 
the  courts  will  give  him  judgment  for  the  amount.  The 
written  contract,  by  reason  of  not  being  filed  for  record, 
is  absolutely  void,  and  cannot  be  put  in  evidence  to  prove 
the  value  of  the  work  or  materials  furnished  by  the  con- 
tractor. The  value,  in  such  a  suit,  will  have  to  be  proved 
by  the  testimony  of  people  who  are  familiar  with  the  work 
and  materials,  and  their  value  at  the  particular  place;  and, 
of  course,  the  testimony  of  the  contractor,  or  the  architect, 
will  have  much  weight  in  determining  the  value  of  the 
work  and  materials. 

Section     279.— INVALID     MEMORANDUM.— Where 

the  memorandum  of  a  building  contract,  filed  with  the 
County  Recorder,  does  not  state  of  what  material  the 
building  is  to  be  constructed,  whether  of  wood,  brick,  stone, 
or  iron,  but  merely  describes  it  as  a  building  of  a  certain 
size,  to  be  constructed  in  a  workmanlike  manner  accord- 
ing to  plans  and  specifications,  and  a  copy  of  the  plans 
and  specifications  is  not  filed  or  inserted  in  the  memo- 
randum, the  contract  is  void.  The  contract  is  void  upon 
the  ground  that  the  memorandum  does  not  contain  a  suf- 
ficient statement  of  the  general  character  of  the  work  to 
be  done.  The  law  is  very  strict  with  reference  to  building 
contracts,  because  the  rights  of  the  parties  to  a  building 
contract  are  entirely  statutory.  The  express  provision  of 
the  law  is,  if  the  contract  or  a  valid  memorandum  thereof 
is  not  filed  with  the  County  Recorder,  the  contract  is  void. 


264  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

Section  280.—SUBSTANTIAL   PERFORMANCE.— In 

certain  cases,  the  contractor,  although  he  has  not  com- 
pleted the  work  literally  as  called  for  by  the  contract,  yet 
may  recover  from  the  owner  the  contract  price,  less  dam- 
ages suffered  by  the  owner  from  the  contractor's  failure  to 
do  the  work  as  contracted  for.  But  the  contractor  must 
show  in  such  cases  that  the  failure  was  not  by  his  own 
fault;  that  he  endeavored  and  intended  in  good  faith  to  do 
the  work  exactly  as  contracted  for ;  and  he  must  also  be 
able  to  show  that  the  work  has  been  in  every  material 
particular  performed  substantially  in  the  manner  called 
for  by  the  contract.  The  contractor  must  have  intended 
in  good  faith  to  comply  with  the  terms  of  the  contract. 
The  spirit  of  the  contract  must  be  faithfully  observed, 
though  the  very  letter  of  it  fail.  Good  faith  alone,  however, 
is  not  enough.  The  owner  has  a  right  to  a  structure  in  all 
essential  particulars  such  as  he  has  contracted  for,  and  to 
authorize  a  court  or  jury  to  find  that  there  has  been  a 
substantial  performance,  it  must  be  found  that  he  has  such 
a  structure.  The  court  cannot  say  that  anything  is  im- 
material, which  the  parties  have  made  material  by  their 
own  agreement.  The  owner  has  a  right  to  have  the  struc- 
ture he  contracted  for,  and  not  another ;  and  even  his 
caprices,  if  expressed  in  the  contract,  must  be  complied 
with,  even  though  they  do  not  add  to  the  value  of  the 
building,  or  may  have  lessened  its  value.  It  is  only  where 
the  plan  has  been  substantially  embodied  in  the  work  that 
the  contractor  will  have  a  remedy  for  substantial  perform- 
ance. The  omissions  or  deviations  from  the  plans  must 
be  the  result  of  a  mistake  or  inadvertance,  and  not  inten- 
tional, much  less  fraudulent ;  and  they  must  be  slight  or 
susceptible  of  remedy,  so  that  an  allowance  out  of  the 
contract  price  will  give  the  owner  substantially  what  he 
contracted  for.  Some  of  the  things  which  will  not  be  con- 
sidered as  substantial  performance  of  a  building  contract 
are  mentioned  in  the  suit  brought  at  San  Francisco  by 
Edward  H.   Perry  against  Thomas  M.  Quackenbush,  and 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  265 

decided  by  the  Supreme  Court  of  California.  The  con- 
tractor agreed  in  the  construction  of  the  foundation  to 
use  good,  hard  brick  and  lay  seven  courses,  and  to  con- 
struct twelve  piers  of  brick  laid  in  six  courses.  In  viola- 
tion of  the  agreement,  he  used  old,  second-hand  brick  of 
poor  quality,  that  had  been  used  in  other  buildings,  and 
laid  the  same  in  courses  of  five  and  six  instead  of  seven, 
and  constructed  only  six  piers  of  brick  of  the  same  kind 
laid  in  three  courses.  He  agreed  to  use  in  the  construc- 
tion of  the  frame  of  said  building  the  best  kind  of  lumber; 
contrary  to  his  agreement,  he  used  only  second-class  lum- 
ber and  second-hand  and  refuse  lumber  that  had  been  used 
in  other  buildings.  He  agreed  to  use  in  the  construction 
of  the  roof  the  best  quality  of  shingles;  contrary  to  his 
agreement,  he  used  second-hand  lumber  and  second-class 
shingles.  He  agreed  to  paint  the  building  with  two  coats 
of'  metallic  paint,  but  used  no  metallic  paint  at  all,  but 
cheap  and  inferior  paint.  The  Supreme  Court  held  that 
these  facts  showed  that  the  contractor  had  in  no  sense  sub- 
stantially performed  his  agreement,  but  that  he  had  inten- 
tionally and  wilfully  departed  from  it.  (Decided  by  the 
Supreme  Court  of  California  in  the  case  of  Edward  H. 
Perry  vs.  Thomas  M.  Quackenbush,  which  decision  is 
printed  in  Volume  105  of  the  California  Reports,  page  299.) 

Section  281.— OWNER  NOT  LIABLE  FOR  DAM- 
AGES ON  UNRECORDED  CONTRACT.— A  contractor 
for  the  erection  of  a  building  cannot  maintain  a  suit  against 
the  owner  to  recover  damages  for  not  being  allowed  to 
complete  the  building,  if  the  contract  price  was  over  one 
thousand  dollars,  and  the  contract  was  not  filed  for  record 
as  required  by  the  law. 

Section  282.— RIGHT  OF  CONTRACTOR  TO  ABAN- 
DON WORK. — If  the  owner  prevents  the  progress  of  the 
work,  or  fails  to  furnish  materials  with  which  the  work 
can  be  done,  where  the  owner  is  to  furnish  the  materials, 


266  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

or  fails  to  pay  an  installment  of  the  price  when  it  becomes 
due,  the  contractor  has  the  right  to  abandon  the  work  and 
sue  the  owner  for  the  reasonable  value  of  his  work  and 
materials.  The  contractor  has  no  right  to  leave  the  work 
without  cause;  and  if,  when  he  makes  a  demand  for  an 
installment  of  the  price,  he  has  not  performed  the  contract 
according  to  its  terms,  the  installment  is  not  legally  due, 
and  he  will  not  be  justified  in  leaving  the  work  on  the 
ground  of  non-payment. 

Section  283.— MATERIAL  DEPARTURE  FROM 
SPECIFICATIONS.— A  building  contractor  must  stick 
close  to  the  plans  and  specifications,  and  must  make  no 
changes  or  deviations  without  the  consent  of  the  owner. 
Any  material  departure  from  the  plans  and  specifications 
by  the  contractor  will  render  him  liable  to  the  owner  in 
damages,  and  may  give  the  owner  the  right  to  rescind  the 
contract  altogether.  Where  a  building  contract  called  for 
laths  one  and  one-quarter  inches  wide,  and  laths  one  and 
one-half  inches  wide  were  used,  and  the  contract  called 
for  No.  1  rustic  and  the  best  quality  of  joists  and  studding, 
and  the  contractor  used  second  quality  of  joists  and  stud- 
ding and  No.  2  rustic,  it  has  been  decided  by  our  Supreme 
Court  that  there  was  a  substantial  and  material  departure 
from  the  specifications  of  the  contract. 

Section  284.— EXCAVATIONS.— The  question  whether 
the  owner  of  land  will  be  liable  in  damages,  for  injury  to 
adjoining  property,  caused  by  excavating,  will  depend  in 
every  case  upon  the  manner  of  making  the  excavation. 
The  owner  of  a  lot  in  making  excavations  must  use  due 
care.  If  one  by  carelessness  in  making  excavations  on 
his  own  land  causes  injury  to  an  adjoining  building,  even 
where  the  owner  of  the  house  has  no  easement  of  support, 
he  will  be  liable  in  damages.  The  law  exacts  from  a  per- 
son who  undertakes  even  a  lawful  act  on  his  own  premises 
from  which  injury  might  be  apprehended  to  the  property 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  267 

of  his  neighbor,  the  exercise  of  a  degree  of  care  measured 
by  the  danger,  to  prevent  or  lessen  the  injury.  The  gen- 
eral rule  is,  that  no  one  has  absolute  freedom  in  the  use 
of  his  property,  but  is  restrained  by  the  coexistence  of 
equal  rights  of  his  neighbor  to  the  use  of  his  property,  so 
that  each  in  exercising  his  right  must  do  no  act  which 
causes  injury  to  his  neighbor.  But  if  the  owner  of  the 
land,  in  making  excavations,  performs  the  work  in  a  proper 
and  careful  manner,  he  will  not  be  liable  for  injury  to  the 
premises  of  an  adjoining  owner.  He  is  required  only  to 
take  reasonable  precaution  to  sustain  the  land  of  the  ad- 
j*oining  owner.  The  adjoining  owner  must  also  take  pre- 
caution to  sustain  his  own  walls,  after  notice  of  the  intended 
excavations.  The  party  intending  to  make  excavations 
must  give  notice  to  the  adjoining  owner.  This  notice  may 
be  verbal  or  written.  The  notice  is  not  required  to  be 
in  any  particular  form.  In  one  case  decided  by  the  Su- 
preme Court  of  California,  it  was  held  that  the  following 
notice  was  entirely  sufficient :  "Dear  Madam :  As  we  are 
about  to  excavate  the  premises  on  the  southeast  corner  of 
Haight  and  Devisadero  Streets,  directly  adjoining  your 
lot,  to  a  depth  somewhat  below  your  foundation,  you  are 
hereby  notified  to  take  the  necessary  measures  to  protect 
your  property.  Very  respectfully,  Cunningham  Bros., 
Architects.  For  Christian  Warneke."  (Decided  by  the 
Supreme  Court  of  California,  in  the  case  of  Nippert  vs. 
Warneke,  which  decision  is  reported  in  Volume  128  of  the 
California  Reports,  page  501.) 

Civil  Code,  Section  832. 

Section  284a.— UNSAFE  SCAFFOLDING,  LADDERS, 
ETC. — Any  person  or  corporation  employing  or  directing 
another  to  do  or  perform  any  labor  in  the  construction, 
alteration,  repairing,  painting  or  cleaning  of  any  house, 
building  or  structure  within  this  State,  who  knowingly  or 
negligently  furnishes  or  erects  or  causes  to  be  furnished  or 
erected    for    performance    of    labor,  unsafe    or    improper 


268  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

scaffolding,  slings,  hangers,  blocks,  pulleys,  stays,  braces, 
ladders,  irons,  ropes  or  other  mechanical  contrivances ; 
or  who  hinders  or  obstructs  any  officer  attempting  to  in- 
spect the  same;  or  who  destroys,  defaces,  or  removes  any 
notice  posted  thereon  by  such  officer;  or  who  permits 
the  use  thereof,  after  the  same  has  been  declared  unsafe  by 
such  officer;  is  guilty  of  a  misdemeanor. 

Act  of  the  Legislature,  approved  March  13,  1909. 

Section  284b.— TEMPORARY  FLOORING  FOR  PRO- 
TECTION OF  WORKMEN.— The  Legislature  of  1909 
passed  a  law,  providing  for  temporary  flooring  in  buildings 
under  construction,  for  the  protection  of  workmen.  This 
law  reads  as  follows : 

"Any  building  more  than  three  stories  high  in  the  course 
of  construction  shall  have  the  joists,  beams  or  girders  of 
each  and  every  floor  below  the  floor  or  level  where  any  work 
is  being  done  or  about  to  be  done,  covered  with  flooring 
laid  close  together,  or  with  other  suitable  material,  to  pro- 
tect workmen  engaged  in  such  building  from  falling  joists 
or  girders,  and  from  falling  bricks,  rivets,  tools  and  other 
substances  whereby  life  and  limb  are  endangered. 

It  shall  be  the  duty  of  the  contractor  having  charge  of 
such  building  to  provide  the  flooring  as  herein  required. 

It  shall  be  the  duty  of  the  owner  of  such  building  to  see 
that  the  contractor  carries  out  the  provisions  of  this  act. 

Should  the  owner  of  such  building  let  a  contract  for  the 
construction  of  the  class  of  building  as  herein  provided  to 
more  than  one  contractor  it  shall  then  be  the  duty  of  the 
owner  to  provide  the  flooring  as  herein  required. 

Failure  upon  the  part  of  the  owner  or  contractor  to  com- 
ply with  the  provisions  of  this  act  shall  be  deemed  a  misde- 
meanor and  shall  be  punishable  as  such." 

Act  of  the  Legislature,  approved  March  6,  1909. 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  269 

Mechanic's  Lien 
Section  285.— THE  PERSONS  ENTITLED  TO 
LIENS. — The  Legislature  has  provided  for  a  class  of  per- 
sons who  may  have  preferred  liens  upon  real  property  for 
the  money  due  them.  The  statute  includes  mechanics, 
material-men,  contractors,  sub-contractors,  architects,  ma- 
chinists, builders,  miners,  and  all  persons  and  laborers  of 
every  class  performing  labor  upon  or  furnishing  materials 
to  be  used  in  the  construction,  alteration,  addition  to  or 
repair  of  any  building,  wharf,  bridge,  ditch,  flume,  aqueduct, 
well,  tunnel,  fence,  machinery,  railroad,  wagon  road,  or 
other  structure,  as  the  persons  who  are  entitled  to  a  lien 
upon  the  property  for  the  value  of  their  labor  or  materials 
furnished. 

Code  of  Civil  Procedure,  Section  1183. 

Section  286.— TO  WHAT  LIEN  EXTENDS.— In  case 
of  a  contract  for  the  work,  between  the  reputed  owner 
and  the  contractor,  the  lien  extends  to  the  entire  contract 
price,  and  such  contract  operates  as  a  lien  in  favor  of  all 
persons,  except  the  contractor,  to  the  extent  of  the  whole 
contract  price;  and  after  all  other  liens  are  satisfied,  the 
contractor  himself  may  have  a  lien  for  any  balance  due 
in  his  own  favor. 

Code  of  Civil  Procedure,  Section  1183. 

Section  287.— ADVANCE  PAYMENTS  DO  NOT  AF- 
FECT LIEN. — No  payment  made  before  it  is  due,  under 
the  terms  and  conditions  of  the  contract,  will  be  allowed 
to  defeat  or  affect  any  lien  in  favor  of  any  person,  except 
the  contractor.  As  to  all  persons  except  the  contractor 
himself,  all  advance  payments,  or  payments  made  before 
they  are  due  under  the  contract,  are  considered  by  the  law 
as  if  they  had  never  been  made,  and  the  amount  is  still 
applicable  to  liens,  even  where  the  contractor  to  whom 
the  money  was  paid  afterwards  abandons  his  contract  or 


270  BUSINESS  LAWS   FOR  BUSINESS   MEN. 

becomes  liable  to  the  owner  for  damages  for  not  perform- 
ing it.  The  owner  will  take  his  chances,  if  he  pays  the 
contractor  in  advance,  and  cannot  be  allowed  to  thus  shut 
out  any  lienholder  and  deprive  him  of  the  benefit  of  the 
money  due  on  the  contract. 

Code  of  Civil  Procedure,  Section  1184. 

Section  288.— ALTERATION  OF  CONTRACT  DOES 
NOT  AFFECT  LIEN.— No  alteration  of  a  building  con- 
tract affects  any  lien  provided  for  by  the  law. 

I 

Section  289.— NOTICE  TO  REPUTED  OWNER.— Any 

of  the  persons  entitled  to  liens  mentioned  in  Section  285, 
except  the  contractor,  may  at  any  time  give  to  the  reputed 
owner  of  the  property  a  notice  in  writing  that  they  have 
performed  labor  or  furnished  materials,  or  both,  to  the 
contractor  or  other  person  acting  by  authority  of  the 
reputed  owner.  The  notice  must  state  in  general  terms 
the  kind  of  labor  and  materials,  the  name  of  the  person  to 
whom  they  were  furnished,  the  name  of  the  person  who 
performed  the  labor  or  furnished  the  materials,  and  the 
value  of  the  labor  or  materials  already  furnished  and  that 
agreed  to  be  furnished.  The  written  notice  must  be  de- 
livered to  the  reputed  owner  personally,  or  by  leaving  it 
at  his  residence  or  place  of  business,  with  some  person  in 
charge,  or  by  delivering  it  to  his  architects,  or  by  leaving 
it  at  their  residence  or  place  of  business,  with  some  person 
in  charge,  or  by  posting  it  in  a  conspicuous  place  upon 
the  claim  or  improvement.  No  such  notice  is  invalid  by 
reason  of  any  defect  of  form,  provided  it  is  sufficient  to 
inform  the  reputed  owner  of  the  matters  above  stated,  or 
to  put  him  upon  inquiry  as  to  such  matters.  Upon  such 
notice  being  given,  it  shall  be  the  duty  of  the  person  who 
contracted  with  the  contractor  to, withhold  from  him  suffi- 
cient money  due  or  that  may  become  due  to  answer  any 
claim  and  any  lien  tbat  may  be  filed. 

Code  of  Civil  Procedure,  Section  1184. 


BUSINESS   CONTRACTS  AND  LEGAL.  OBLIGATIONS.  271 

Section  290.— WHAT  INTEREST  IN  THE  LAND 
SUBJECT  TO  THE  LIEN.— The  land  upon  which  any 
building,  improvement,  well,  or  structure  is  constructed, 
together  with  a  convenient  space  about  the  premises,  so 
much  as  may  be  required  for  convenient  use  and  occupa- 
tion, is  subject  to  the  lien;  provided,  that  at  the  time  of 
the  commencement  of  the  work,  or  when  the  materials 
were  furnished,  the  land  belonged  to  the  person  who  caused 
the  work  to  be  done  or  materials  furnished.  If  the  land, 
at  the  time  of  the  commencement  of  the  work,  or  when 
the  materials  were  furnished,  did  not  belong  in  fee  simple 
to  the  person  who  caused  the  work  to  be  done  or  materials 
furnished,  then  only  his  interest  in  the  land,  whatever  it 
was,  is  subject  to  the 'lien. 

Code  of  Civil  Procedure,  Section  1185. 

Section    291.— EFFECT    OF    MECHANIC'S    LIEN.— 

Mechanic's  liens  are  preferred  liens.  That  is,  they  must 
be  satisfied  before  any  mortgage,  or  other  encumbrance, 
put  on  the  property  after  the  date  when  the  building  or 
other  structure  was  commenced,  or  work  done,  or  materials 
commenced  to  be  furnished ;  and  a  mechanic's  lien  must 
be  paid  before  any  lien,  mortgage,  or  other  encumbrance 
of  which  the  lienholder  had  no  notice,  and  which  was 
unrecorded  at  the  time  the  building  or  other  structure  was 
commenced,  work  done,  or  materials  commenced  to  be 
furnished. 

Code  of  Civil  Procedure,  Section  1186. 

Section  292.— OWNER'S  NOTICE  OF  COMPLE- 
TION.— Under  the  law,  the  owner  of  the  building  or  other 
structure  must,  within  ten  days  after  the  completion  of  the 
contract,  or  within  forty  days  after  cessation  from  labor 
upon  any  unfinished  contract,  or  upon  any  unfinished  build- 
ing, file  for  record  in  the  office  of  the  County  Recorder 
of  the  county  in  which  the  property  is  situated  a  written 
notice  of  completion.     This  notice  by  the  owner  must  state 


272  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  date  when  the  building  was  actually  completed,  or  in 
case  of  cessation  from  labor  for  thirty  days,  the  date  on 
which  labor  actually  ceased ;  the  name-  and  the  nature  of 
the  title  to  the  property  of  the  person  who  caused  the 
building  or  other  structure  to  be  erected  or  repaired  or 
altered  or  added  to;  and  also  a  description  of  the  property 
sufficient  for  identification.  The  notice  must  be  sworn 
to  by  the  owner  or  some  other  person  in  his  behalf. 
Code  of  Civil   Procedure,  Section   1187. 

Section  293.— EFFECT  OF  FAILURE  TO  FILE 
OWNER'S  NOTICE.— If  the  owner  neglects  to  file  the 
notice  of  completion  for  record,  the  law  provides,  as  a 
penalty  for  this  failure,  that  he  cannot  make  any  defense 
to  a  suit  to  foreclose  a  mechanic's  lien  on  the  ground  that 
the  lien  was  not  filed  in  time. 

Section  294.— FEE  FOR  RECORDING  OWNER'S 
NOTICE.— The  fee  to  be  paid  the  County  Recorder,  for 
recording  the  owner's  notice  of  completion,  is  the  sum  of 
one  dollar. 

Section  295.— TIME  WITHIN  WHICH  ORIGINAL 
CONTRACTOR  MAY  FILE  LIEN.— Every  original  con- 
tractor, at  any  time  after  the  completion  of  his  contract, 
and  until  the  expiration  of  sixty  days  after  the  filing  of  the 
owner's  notice,  may  file  a  lien  on  the  property ;  provided, 
all  liens  must  be  filed  within  ninety  days  after  completion. 
Code  of  Civil   Procedure,  Section   1187. 

Section  296.— TIME  WITHIN  WHICH  MECHANIC, 
MATERIAL-MAN,  OR  LABORER  MAY  FILE  LIEN. 

- — Every  person,  except  the  original  contractor,  claiming 
the  benefit  of  the  lien  law,  may  file  a  lien  on  the  property 
at  any  time  after  the  completion  of  the  building  or  struc- 
ture, or  completion  of  any  alteration,  addition,  or  repairs, 
and  until  the  expiration  of  thirty  days  after  the  filing  of 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  273 

the  owner's  notice ;  provided,  all  Hens  must  be  filed  within 
ninety  days  after  completion. 

Code  of  Civil   Procedure,  Section   1187. 

Section  297.— TIME  WITHIN  WHICH  MINER  MAY 
FILE  LIEN. — Every  person  who  has  performed  labor  in 
a  mining  claim,  may  file  a  lien  on  the  property  to  secure 
his  pay,  at  any  time  within  thirty  days  after  the  completion 
of  his  labor. 

Code  of  Civil   Procedure,  Section   1187. 

Section  298.— CLAIM  OF  LIEN  TO  BE  FILED  IN 
RECORDER'S  OFFICE.— The  claim  of  lien  must  be  filed 
for  record  with  the  County  Recorder  of  the  county  where 
the  property  or  some  part  of  it  is  situated.  The  claim  of 
lien  must  be  in  writing,  and  the  law  specifies  the  particular 
statements  it  must  contain.  It  must  contain,  first,  a  state- 
ment of  the  demand  for  which  the  lien  is  filed,  giving  the 
amount  after  deducting  all  just  credits  and  offsets.  It 
must  also  contain  the  name  of  the  owner  or  reputed  owner 
of  the  property,  if  known,  and  also  the  name  of  the  person 
by  whom  the  claimant  was  employed,  or  to  whom  he  fur- 
nished the  materials,  with  a  statement  of  the  terms,  time 
given,  and  conditions  of  his  contract.  The  claim  must 
also  contain  a  description  of  the  property  to  be  charged 
with  the  lien,  sufficient  for  identification.  The  claim  must 
be  verified,  and  should  be  sworn  to  by  the  claimant. 
Code  of  Civil   Procedure,  Section   1187. 

Section  299.— OCCUPATION  OR  USE  OF  BUILDING 
EQUIVALENT  TO  COMPLETION.— In  all  cases  the 
occupation  or  use  of  a  building,  or  structure,  by  the  owner 
or  his  agent,  will  be  deemed  equivalent  to  its  completion 
for  all  the  purposes  of  the  lien  law.  So,  also,  acceptance 
of  the  building  by  the  owner  or  his  agent,  and  cessation 
from  labor  for  thirty  days  upon  any  contract,  or  on  any 


274  BUSINESS   LAWS   FOR  BUSINESS    MEN. 

building  or  structure,  will  be  deemed  equivalent  to  its  com- 
pletion. 

Code  of  Civil  Procedure,  Section  1187. 

Section  300.— LIENS  UPON  TWO  OR  MORE  PIECES 
OF  PROPERTY. — In  every  case  in  which  one  claim  is 
filed  against  two  or  more  separate  and  distinct  buildings, 
mining  claims,  or  other  improvements,  owned  by  the  same 
person,  the  claim  filed  must  designate  the  amount  due  on 
each  of  such  buildings,  mining  claims,  or  other  improve- 
ments ;  and  if  this  is  not  done,  the  Hen  of  such  claim  is 
postponed  to  other  liens.  The  lien  of  such  claim  does  not 
extend  beyond  the  amount  designated,  upon  either  of  such 
buildings,  or  other  improvements,  or  upon  the  land,  as 
against  other  creditors  having  liens  by  judgment,  mort- 
gage, or  otherwise. 

Code  of  Civil  Procedure,  Section   1188. 

Section  301.— WHEN  SUIT  MUST  BE  COMMENCED 
TO  FORECLOSE  LIEN.— A  suit  to  foreclose  a  lien  upon 
any  building,  mining  claim,  improvement,  or  structure, 
must  be  commenced  within  ninety  days  after  the  claim  of 
lien  was  filed  for  record;  or,  if  a  credit  be  given  to  the 
owner,  then  the  suit  must  be  commenced  within  ninety 
days  after  the  expiration  of  the  term  of  credit ;  but  no  lien 
continues  in  force  for  a  longer  time  than  two  years  from 
the  time  the  work  is  completed,  by  any  agreement  to  give 
credit. 

Code  of  Civil  Procedure,  Section  1190. 

Section  302.— LIENS  ON  LOTS  IN  INCORPORATED 
CITIES  AND  TOWNS.— Any  person  who,  at  the  request 
of  the  reputed  owner  of  any  lot  in  any  incorporated  city 
or  town  in  California,  grades,  fills  in,  or  otherwise  improves 
the  lot,  or  the  street  or  sidewalk  in  front  of  or  adjoining  it, 
or  who  constructs  any  areas,  vaults,  cellars,  or  rooms,  under 
the  sidewalk,  or  makes  any  improvements  in  connection 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  275 

therewith,  has  a  lien  upon  such  lot  for  his  work  done  and 
materials  furnished.  A  claim  of  lien  should  be  filed  in  the 
Recorder's  office,  although  the  statute  does  not  speak  of 
filing  a  claim  for  such  a  lien. 

Code  of  Civil  Procedure,  Section  1191. 

Section  303.— NOTICE  BY  OWNER  THAT  HE  WILL 
NOT  BE  RESPONSIBLE.— The  owner  of  any  lots  or 
land,  or  the  owner  of  a  mining  claim,  will  be  liable  for 
liens  for  materials,  and  for  work  or  labor  of  every  kind, 
used  in  or  upon  buildings  or  other  improvements  put  on 
his  land  with  his  knowledge,  if  he  stands  carelessly  by  and 
takes  no  action  to  protect  himself.  The  law  provides  that 
the  owner  may,  within  ten  days  after  he  has  obtained  knowl- 
edge of  the  building  operations  or  other  improvements  on 
his  land,  give  notice  that  he  will  not  be  responsible  for  the 
same.  The  notice  must  be  in  writing,  and  must  be  posted 
in  some  conspicuous  place  on  the  land,  or  on  the  building 
or  other  improvement  situated  thereon ;  or  a  copy  of  the 
notice  must  be  filed  and  recorded  in  the  office  of  the  County 
Recorder  of  the  county  where  the  land  is  situated.  The 
posting  of  a  notice  on  land  within  ten  days  after  the  owner 
obtains  knowledge  of  the  commencement  of  the  erection  of 
any  building  or  construction  of  any  improvement  thereon, 
or  the  filing  and  recording  of  a  copy  of  such  notice  in  the 
office  of  the  County  Recorder,  stating  that  the  owner  of 
the  land  will  not  be  responsible,  will  relieve  the  owner  and 
the  land  from  any  liability  for  such  building  or  improve- 
ment. Machinery  leased,  or  bought  on  the  installment  plan, 
and  used  on  a  mining  claim,  will  also  be  liable  for  liens 
for  work  or  materials  on  the  mining  claim,  unless  the  lessor 
or  owner  of  the  machinery  gives  a  similar  notice  by  posting 
or  recording  within  ten  days  after  the  machinery  is  deliv- 
ered at  the  mining  claim.  (Code  of  Civil  Procedure,  Sec- 
tion 1192,  as  amended  March  18,  1907.) 

Section  304.— MEASURE  OF  RECOVERY  BY  CON- 
TRACTOR.— The  contractor  is  entitled  to  recover  upon 


276  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

a  lien  filed  by  him  only  such  amount  as  may  be  due  to  him 
according  to  the  terms  of  his  contract,  after  deducting 
all  claims  of  other  parties  for  work  done  and  materials 
furnished. 

Code  of  Civil  Procedure,  Section  1193. 

Section  305.— CONTRACTOR  MUST  DEFEND  SUITS 
ON  LIENS  AT  HIS  OWN  EXPENSE.— In  all  cases 
where  a  lien  is  filed  for  work  done  or  materials  furnished 
to  any  contractor,  he  must  defend  any  suit  brought  to  fore- 
close the  lien,  at  his  own  expense.  While  any  such  suit  is 
going  on,  the  owner  may  withhold  from  the  contractor  the 
amount  of  money  for  which  the  suit  was  filed;  and  in  case 
of  judgment  against  the  owner  or  his  prbperty,  upon  the 
lien,  the  owner  is  entitled  to  deduct  the  amount  of  the 
judgment  and  costs  from  the  amount  due  or  to  become  due 
by  him  to  the  contractor.  If  the  amount  of  the  judgment 
exceeds  the  amount  due  by  him  to  the  contractor  in  full, 
he  is  entitled  to  sue  and  recover  from  the  contractor  any 
amount  paid  by  him  in  excess  of  the  contract  price. 
Code  of  Civil  Procedure,  Section  1193. 

Section  306.— ORDER  IN  WHICH  LIENS  APPLY.— 

The  Supreme  Court  has  decided  that  the  provision  of  Sec- 
tion 1194  of  the  Code  of  Civil  Procedure,  that  persons  per- 
forming manual  labor  shall  be  first  paid,  and  that  material- 
men shall  have  no  lien  except  on  any  balance  remaining 
after  laborers  are  paid,  is  unconstitutional  and  void.  Me- 
chanics, artisans,  material-men  and  laborers  must  be  placed 
in  the  same  class.  Where  different  liens  are  filed  against 
any  property,  by  a  number  of  persons,  the  law  declares 
which  shall  have  the  preference,  and  they  have  preference 
and  must  be  paid  in  the  order  named :  First,  all  mechanics, 
artisans,  laborers  and  material-men ;  second,  sub-contract- 
ors ;  third,  contractors.  These  are  the  three  classes  of  liens, 
and  the  proceeds  of  sales  of  property  under  a  lien  must  be 
paid  to  the  classes  in  the  order  named.     fDecided  by  the 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  277 

Supreme  Court  of  California,  in  the  case  of  Mrs.  Paul  Milti- 
more  vs.  Nofziger  Brothers  Lumber  Company,  which  deci- 
sion is  printed  in  Volume  33,  California  Decisions,  page  446.) 
Where  there  is  no  valid  contract,  the  priority  of  liens  is 
to  be  determined  by  the  time  the  work  was  done  or  the 
materials  commenced  to  be  furnished.  (Decided  by  the 
Supreme  Court  of  California,  in  the  case  of  Burnett  vs.  Glas, 
which  decision  is  printed  in  California  Decisions,  Volume  36. 
page  204.) 

Section  307.— LIEN  MAY  BE  WAIVED  AND  PER- 
SONAL ACTION  BROUGHT.— The  laborer,  mechanic, 
or  material-man,  to  whom  money  is  due  on  a  building  con- 
tract, is  not  compelled  to  file  a  lien  or  seek  to  recover  his 
money  in  that  way.  He  may  bring  a  personal  action  against 
the  owner  or  contractor,  who  is  indebted  to  him,  for  the 
unpaid  portion  of  the  contract  price,  without  seeking  to 
enforce  a  lien  against  the  building. 

Code  of  Civil  Procedure,  Section  1197. 

Section  308.— WHAT  IS  APPLIED  TO  LIENS  WHEN 
CONTRACTOR  ABANDONS  THE  WORK.— If  the  con- 
tractor fails  to  perform  his  contract  in  full,  or  abandons 
the  work  before  completion,  the  portion  of  the  contract 
applicable  to  the  liens  of  other  persons  is  fixed  by  esti- 
mating the  value  of  the  work  already  done  and  materials 
furnished,  including  materials  then  actually  delivered  or 
on  the  ground,  and  deducting  the  payments  then  due  and 
actually  paid  to  the  contractor;  and  the  remaining  portion 
of  the  contract  price  must  be  applied  to  such  liens.  In  such 
cases,  the  value  of  the  work  already  done  and  materials 
furnished  must  be  estimated  as  near  as  may  be  by  the 
standard  of  the  whole  contract  price. 

Code  of  Civil  Procedure,  Section  1200. 

Section  309. — FALSE  CLAIMS. — Any  person  who  in- 
tentionally gives  a  false  notice  of  his  claim  to  the  owner 


278  .    BUSINESS  LAWS  FOR  BUSINESS  MEN. 

forfeits  his  lien.  Any  person  who  intentionally  includes 
in  his  claim,  filed  with  the  County  Recorder,  work  not 
performed  or  materials  not  furnished  for  the  property  de- 
scribed in  the  claim,  forfeits  his  lien. 

Code  of  Civil  Procedure,  Section  1202. 

Section  310.— CONSPIRACY  BETWEEN  OWNER 
AND  CONTRACTOR.— If  the  owner  and  contractor  con- 
spire together  and  make  the  written  contract  filed  show 
the  contract  price  to  be  less  than  it  really  is,  then  the 
contract  is  wholly  void ;  and  in  all  such  cases  the  labor  done 
and  materials  furnished  by  all  persons,  except  the  con- 
tractor, are  deemed  in  law  to  have  been  done  and  furnished 
at  the  personal  request  of  the  owner,  and  liens  can  be  filed 
for  the  work  or  materials  furnished. 

Code  of  Civil  Procedure,  Section  1202. 

Section  311.— BUILDING  CONSTRUCTED  UNDER 
DISTINCT  CONTRACTS— WHO  IS  ORIGINAL  CON- 
TRACTOR.— Where  a  building  is  constructed  under  dis- 
tinct contracts  for  the  different  departments  of  work  in- 
volved, each  person  contracted  with  is  an  original  con- 
tractor, and  can  file  his  claim  of  lien  within  sixty  days  after 
the  completion  of  his  contract,  irrespective  of  the  time  when 
the  entire  building  is  completed.  The  provisions  of  the 
Code  relating  to  mechanic's  liens  do  not  contemplate  that 
there  can  be  no  original  contractor  except  for  the  entire 
work  of  constructing  the  building.  For  the  purpose  of  con- 
structing the  building,  the  owner  may  enter  into  different 
original  contracts,  for  the  different  departments  of  work 
involved.  If  the  owner  should  enter  into  a  contract  with 
one  person  for  the  construction  of  a  building  in  all  its  parts, 
except  the  painting,  and  should  afterwards  enter  into  a 
contract  with  another  person  to  do  the  painting  of  the 
building,  each  of  these  individuals  would  be  an  original 
contractor,  within  the  meaning  of  the  law.  The  laborers 
and  material-men  under  each  contractor  would  be  entitled 


BUSINESS   CONTRACTS  AND  LEGALi   OBLIGATIONS.  279 

to  a  lien,  and  it  would  be  immaterial  when  the  building 
was  completed.  The  contract  price  with  each  contractor 
would  be  the  limit  of  the  owner's  liability  for  such  liens. 

Section  312.— ALLOWANCE  OF  INTEREST.— Where 
the  contract  prescribes  the  time  of  payments,  and  a  suit 
is  brought  to  foreclose  a  lien,  the  court  will  allow  interest 
on  the  amount  found  due  from  the  time  when  it  should 
have  been  paid  to  the  date  of  entering  the  judgment,  at 
the  rate  of  seven  per  cent  per  annum ;  and,  where  no  time 
for  payment  is  specified  in  the  contract,  interest  will  be 
allowed  from  the  date  when  the  complaint  to  foreclose  the 
lien  was  filed  in  the  Clerk's  office. 

Section  313.— ATTORNEY'S  FEES.— The  court  cannot 
allow,  in  suits  to  foreclose  mechanic's  liens,  any  attorney's 
fees  to  any  lien  claimant.  The  law  until  recently  had  been 
for  many  years  that  a  person  foreclosing  a  mechanic's  lien 
would  be  allowed  reasonable  attorney's  fees,  in  both  the 
Superior  and  Supreme  Courts ;  but  the  Supreme  Court  of 
California  has  rendered  a  decision,  in  a  suit  brought  to  fore- 
close a  mechanic's  lien,  declaring  the  law  allowing  an  attor- 
ney's fee  unconstitutional  and  void.  In  San  Francisco,  the 
Builders'  Supply  Depot  foreclosed  a  lien  for  materials  and 
labor  furnished  in  the  construction  of  a  building.  The  Su- 
perior Court  allowed  the  plaintiff  attorney's  fees  and  includ- 
ed such  fees  in  the  judgment.  The  defendants  appealed 
the  case  to  the  Supreme  Court,  and  this  court  has  decided 
that  attorney's  fees  cannot  be  allowed,  and  that  the  Code 
law  giving  such  fees  is  void.  The  court  says :  "The  court 
allowed  an  attorney's  fee  in  each  of  the  cases,  and  appellants 
contend  that  such  allowance  was  erroneous  because  the 
statutory  provision  directing  the  allowance  of  such  a  fee 
is  unconstitutional  and  void.  In  our  opinion  this  contention 
must  be  sustained..  In  a  few  instances  this  court  has 
affirmed  judgment  for  plaintiffs  in  mechanic's  lien  cases 
which  included  attorney's  fees;  but  our  attention  has  not 


280  BUSINESS  LAWS  FOR  BUSINESS   MEN.  , 

been  called  to  any  case  where  the  question  of  the  constitu- 
tionality of  the  statute  providing  for  such  fees  has  been 
raised,  or  presented  to  the  court  for  adjudication.  In  the 
case  at  bar  the  question  has  been  for  the  first  time  raised." 
The  court  decides  that  the  expense  of  filing  the  liens  may  be 
allowed  as  costs  of  suit,  but  that  no  attorney  fee  can  be 
lawfully  claimed  or  allowed.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  Builders'  Supply  Depot 
vs.  Dennis  O'Conner,  which  decision  is  printed  in  Volume 
33,  California  Decisions,  page  97.) 

Section  314.— WHEN  LIEN  FOR  MATERIALS  BE- 
GINS.— A  lien  for  the  furnishing  of  materials  relates  to 
the  date  of  beginning  to  furnish  them,  and  includes  all 
the  materials  thereafter  furnished  for  the  building;  and 
such  lien  has  priority  over  a  mortgage  executed  after  the 
date  of  the  commencement  to  furnish  the  materials. 

Section  315.— PARTNERSHIP  CLAIM.— A  partner- 
ship cannot  claim  a  building  lien  for  the  materials  furnished 
under  contract  with  an  individual  member  of  the  firm,  nor 
can  such  member  indirectly  claim  a  lien  as  a  member  of 
the  firm. 

Section  316.— WHEN  CONTRACTOR  NOT  ENTI- 
TLED TO  LIEN.— A  contractor  who  has  entered  into  a 
written  contract  with  the  owner  of  land  for  the  construc- 
tion of  a  building  for  an  amount  in  excess  of  one  thousand 
dollars,  but  who  fails  to  have  the  contract  recorded,  is  not 
entitled  to  a  lien  for  the  value  of  the  work  done.  He  can 
only  recover  a  personal  judgment  against  the  owner  of 
the  building  for  the  value  of  his  work  and  labor,  without 
any  allowance  for  counsel  fees  or  expenses  of  preparing 
and  recording  a  mechanic's  lien. 

Section  317.— DEDUCTION  BY  OWNER  OF 
AMOUNT  OF  FORECLOSED  LIEN.— It  is  the  duty 
of  the   contractor   to   protect   the   property  of  the  owner 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  281 

against  any  lien  preferred  by  sub-contractors,  laborers,  or 
material-men  employed  by  him;  and  the  owner  is  entitled 
to  deduct  from  any  amount  due  to  the  contractor  the 
amount  of  the  judgment  and  costs  recovered  upon  fore- 
closure of  the  lien  of  a  sub-contractor. 

Section  318.— LIEN  FOR  MOVING  A  HOUSE.— Un- 
der Section  1183  of  the  Code  of  Civil  Procedure,  a  contractor 
performing  labor  upon  a  house,  by  moving  it  from  one 
place  to  another,  is  entitled  to  a  lien  thereon. 

Section  319.— LIEN  ON  HOMESTEAD.— A  mechanic's 
lien  may  be  created  on  a  homestead  without  the  joint  action 
of  husband  and  wife.  A  homestead  is  free  from  forced 
sale,  except  as  provided  by  the  statute.  Among  the  cases 
in  which  a  homestead  may  be  sold  under  execution,  pre- 
cisely as  though  it  was  not  a  homestead,  are  those  under 
judgments  obtained  upon  debts  secured  by  the  liens  of 
"mechanics,  contractors,  artisans,  architects,  builders, 
laborers  of  every  class,  and  material-men." 

Section  320.— NOTICE  BY  MATERIAL-MAN  TO 
TRUSTEES  OF  STATE  INSTITUTION.— A  notice 
given  to  Trustees  of  a  State  institution  by  one  who  had 
furnished  material  to  a  contractor  with  such  Trustees  for 
the  erection  of  a  building,  that  an  amount  is  still  due  him 
for  such  material,  and  requiring  the  Trustees  to  pay  him 
any  amount  then  due  or  that  shall  thereafter  become  due 
to  the  contractor,  operates  as  a  garnishment  and  inter- 
cepts any  payments  which  the  contractor  may  then  or 
thereafter  be  entitled  to  receive. 

Section  321.— LIEN  AGAINST  RAILROAD.— A  lien 
may  be  filed  against  a  railroad,  and  where  a  railroad  lies 
in  two  counties,  it  is  not  necessary  to  file  the  lien  in  both 
counties.  It  is  sufficient  if  the  lien  is  filed  in  one  of  the 
counties  only  through  which  the  railroad  runs. 


282  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  322.— ABANDONMENT  AND  NEW  CON- 
TRACT.— Where  a  building  contract  is  abandoned,  it  is 
immaterial  whether  the  building  is  subsequently  completed 
by  the  owner  or  not;  and  a  subsequent  contract  by  the 
owner  for  the  completion  of  the  work  is  as  disconnected 
with  the  original  contract  as  if  it  were  for  the  construc- 
tion of  a  different  building.  Where  the  original  contractor 
under  a  building  contract  gives  to  the  owner  of  the  build- 
ing written  notice  that  he  abandons  the  contract,  and  that 
he  declines  to  proceed  further  in  its  execution,  and  there- 
after does  no  work  on  the  building,  whereupon  the  owner 
contracts  with  another  builder  to  complete  the  construc- 
tion of  the  building,  it  is  incumbent  upon  those  who  claim 
any  mechanic's  liens  by  virtue  of  the  original  contract  to 
file  their  claims  of  lien  with  the  County  Recorder  within 
thirty  days  after  there  has  been  a  cessation  from  labor  for 
thirty  days  upon  the  unfinished  contract. 

Section  323.— TIME  OF  FILING  CLAIMS  OF  SUB- 
CONTRACTORS.—The  right  to  a  mechanic's  lien  is 
purely  statutory ;  and  if  claims  of  liens  by  sub-contractors 
are  not  filed  within  thirty  days  after  the  occupation  or 
use  of  the  building  by  the  owner  or  his  representatives,  or 
the  acceptance  by  the  owner  or  his  agent,  they  are  not 
filed  in  time,  notwithstanding  the  original  contract  provides 
for  certificates  of  the  architect,  as  a  condition  precedent  to 
the   contractor's   right   to   demand   payment. 

Section  324.— LIENS  ON  MINING  CLAIMS.— One 
who  performs  labor  on  a  mining  shaft,  tunnel,  level,  chute, 
stope,  uprise,  crosscut,  or  incline,  is  entitled  to  a  mechanic's 
lien  on  the  mine  for  such  services.  The  true  meaning  of 
such  expressions  as  shafts,  tunnels,  levels,  chutes,  stopes, 
uprises,  crosscut,  inclines,  etc.,  when  applied  to  mines,  sig- 
nifies instrumentalities  by  which  such  mines  are  opened, 
developed,  prospected,  improved,  and  worked.  He  who  en- 
gages in  the  construction  of  those  prime  requisites  upon 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  283 

or  in  a  mine  is  engaged  in  mining,  equally  with  one  who 
extracts  the  gravel  or  ore  from  the  mine. 

Section  325.— MINER'S  LIEN  MUST  BE  UPON  THE 
WHOLE  CLAIM. — A  mechanic's  lien  cannot  be  claimed 
upon  part  of  a  structure,  or  upon  a  structure  which  is 
part  of  a  larger  structure,  or  upon  part  of  an  entire  prop- 
erty. Therefore,  it  has  been  held  by  the  Supreme  Court 
of  California  that  a  claim  of  lien  for  materials  furnished 
for  the  construction  of  a  mill,  tramway,  boarding-house, 
or  reduction  works  upon  a  mining  claim  should  be  against 
the  mining  claim,  and  not  against  the  specific  structure 
upon  the  mine.  One  contributing  labor  or  materials  to  a 
structure  which  is  an  appurtenance  to  a  mine,  or  which, 
when  constructed,  is  to  form  part  of  it,  must  be  held  to 
have  anticipated  its  future  use,  and  cannot  claim  a  lien 
upon  the  structure  alone.  And  the  procedures  provided 
for  acquiring  liens  upon  structures  are  not,  in  all  respects, 
applicable  to  those  claiming  liens  upon  mining  claims. 
They  cannot  all  date  back  to  the  commencement  of  the 
work.  On  a  mine  the  work  is  always  going  on,  may  have 
commenced  before  the  laborers  were  born,  and  may  continue 
indefinitely.  There  is  no  special  thirty  days,  therefore, 
within  which  mining  lienors  must  record  their  notices  and 
claims  of  lien.  The  labor  cannot  generally  be  said  to  have 
contributed  to  the  creation  of  the  property,  or  added  to 
its  value ;  on  the  contrary,  it  may  diminish  its  value — per- 
haps render  it  valueless.  The  Code  does  not  seem  to  have 
provided  for  all  the  cases  which  may  arise  in  regard  to 
liens  upon  mining  claims.  We  can  only  follow  the  pro- 
cedure so  far  as  applicable.  For  that  purpose,  the  mining 
claim  must  stand  in  the  place  of  the  "structure"  as  the 
property  to  be  charged  with  the  lien.  It  is  the  property 
which  should  be  described  in  the  notice  and  claim  of  lien 
under  Section  1187  of  the  Code.  One  who  has  built  a 
chimney  in  a  house,  or  a  porch,  or  a  door-step,  has  helped 
to  build  a  structure;  but  he  cannot  acquire  a  lien  upon 


284  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

these  specific  structures,  and  by  detached  sales  destroy  the 
value  of  the  claims  depending  upon  liens  upon  the  whole 
house.  A  structure  may  be  a  part  of  another  larger  struc- 
ture, and  in  reference  to  it  constitute  but  a  part  of  a  struc- 
ture. In  such  cases  it  is  well  settled  the  lien  must  cover 
the  entire  structure.  The  mining  lien,  if  it  exists  at  all, 
extends  to  the  whole  claim.  Strictly  speaking,  of  course, 
a  mining  claim  cannot  be  constructed,  altered,  or  repaired. 
The  intention  of  the  lawmakers  seems  to  have  been  to  give 
a  lien  upon  the  whole  claim,  for  labor  performed  on  and 
for  materials  furnished  for  and  used  in  any  structure,  on 
or  in  the  mining  claim.  The  lien  given  by  the  statute 
is  upon  the  mining  claim  as  a  whole,  and  not  upon  the 
separate  pieces  of  work  done  in  its  repairs.  A  claim  of 
lien  for  material  furnished,  to  be  used  in  a  building  upon 
a  mining  claim,  should  be  against  the  mining  claim,  and 
not  against  the  specific  structure  upon  the  mine. 

Section  326.— NO  LIEN  AGAINST  A  PUBLIC 
BUILDING. — A  mechanic's  lien  cannot  be  acquired 
against  a  public  building.  A  material-man  or  a  mechanic 
who  furnishes  materials  to  or  does  work  for  a  contractor 
for  the  erection  of  a  county  building,  upon  giving  written 
notice  to  the  county  of  his  claim,  as  provided  by  Section 
1184  of  the  Code  of  Civil  Procedure,  acquires,  as  against 
the  contractor,  a  prior  right  of  payment  of  his  claim  from 
the  unpaid  portion  of  the  contract  price.  This  right,  as 
against  the  contractor,  does  not  depend  upon  the  legality 
of  the  building  contract,  or  upon  the  right  to  acquire  a  lien. 
The  material-man  or  mechanic  may  maintain  an  action  to 
subject  the  unpaid  portion  of  the  contract  price  to  the 
payment  of  his  claim,  without  seeking  to  enforce  a  lien 
against  the  building.  And  in  such  action,  the  material- 
man or  mechanic  may  obtain  a  judgment  for  any  deficiency 
there  may  be,  against  the  person  to  whom  the  materials 
were  furnished,  or  for  whom  the  work  was  done.  In  such 
an   action,   the   material-man   or   mechanic   is   not   entitled 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  285 

to  recover  an  attorney's  fee,  nor  expenses  incurred  by  him 
in  giving  notice  of  his  claim. 

Section  327.— RIGHT  OF  MATERIAL-MAN  TO 
GIVE  NOTICE. — A  material-man  may  give  notice  to  the 
reputed  owner  of  the  structure  of  his  claim  for  material 
furnished  at  any  time  before  money  falls  due  under  the 
contract,  and  no  assignment  made  by  the  contractor  of 
an  amount  to  become  afterwards  due  to  him  in  the  course 
of  performance  of  the  contract  can,  before  the  arrival  of 
the  time  of  payment,  defeat  the  right  of  the  material-man 
to  give  the  notice  provided  for  in  the  statute  and  to  obtain 
the  benefit  of  it;  and  the  notice  may  be  effectually  given 
so  long  as  the  money  is  owed  to  the  contractor  himself, 
although  the  time  when  it  should  have  been  paid  is  passed. 

Section  328.— ELEVATOR  PART  OF  BUILDING.— 

Where  the  original  plans  for  a  large  building  provided  for 
an  elevator,  and  the  contract  for  the  construction  of  the 
elevator  was  let  when  contracts  for  other  work  were  let, 
the  elevator  was  a  substantial  part  of  the  building,  and 
the  building  was  not  completed,  so  that  the  limitations 
for  filing  mechanics'  liens  would  run,  until  it  was  finished. 
An  elevator  was  called  for  by  the  original  plans  and  speci- 
fications. A  contract  was  let  for  its  construction  at  the 
same  time  that  other  contracts  were  let.  It  was  attached 
to  the  building,  and  formed  an  integral  part  of  it.  The 
fact  that  the  building  might  have  been  used  without  it, 
and  that  it  was  a  convenience  merely,  is  immaterial.  Con- 
ceding an  elevator  to  be  a  mere  convenience — still  con- 
veniences are  a  material  part  of  the  building,  when  provided 
for  by  the  plans  and  specifications;  and,  so  provided  for, 
the  building  is  not  completed  until  the  demands  of  the 
plans  and  specifications  in  this  regard  have  been  satisfied. 

Section  329.— DESCRIPTION  OF  MINING  CLAIM.— 

The  fact  that  a  particular  description  by  metes  and  bounds 


286  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

of  a  mining  claim  in  a  notice  of  a  lien  is  incorrect  will  render 
the  notice  invalid.  Where  the  same  persons  own  two  min- 
ing claims  in  the  same  mining  district,  only  one  of  which 
has  on  it  improvements,  and  it  appears  that  the  mines  are 
known  by  the  names  of  the  parties  working  them,  a  notice 
of  lien  reciting  that  it  is  for  work  done  within  a  designated 
period  of  three  months  on  a  mining  claim,  with  improve- 
ments, located  in  a  particular  mining  district  of  a  certain 
county,  owned  by  the  persons  (naming  them)  who  had 
the  work  done,  does  not  identify  the  claim  with  the  im- 
provements with  sufficient  certainty  to  create  a  lien. 

Section  330.— DWELLING-HOUSE— LAND  SUB- 
JECT TO  LIEN.— Only  so  much  of  the  land  around  a 
dwelling-house  is  subject  to  lien  as  may  be  necessary  for 
the  convenient  use  and  occupation  of  the  house.  So,  where 
a  house  was  situated  on  a  forty-acre  tract,  the  Supreme 
Court  has  said  that  the  whole  tract  was  not  subject  to  the 
lien.  The  statute  does  not  contemplate  anything  of  that 
kind.  It  means  exactly  what  it  says — a  sufficient  space 
around  the  dwelling  for  its  convenient  use  and  occupation. 
It  does  not  contemplate  that  sufficient  land  around  the 
dwelling-house  to  support  the  owner  while  living  there  be 
set  apart.  Neither  the  productiveness  nor  non-productive- 
ness of  the  soil,  nor  the  profit  derived  from  the  cultivation 
of  the  land,  is  a  material  element  to  be  considered  in  deter- 
mining the  amount  of  land  to  be  set  apart  with  the  dwell- 
ing-house. The  statute  simply  allows  the  dwelling-house 
and  a  quantity  of  land  around  it  sufficient  for  its  convenient 
use,  as  the  subject  of  a  lien. 

Section  331.— CONTRACTOR  AND  OWNER  CAN- 
NOT TAKE  AWAY  MATERIAL-MAN'S  LIEN.— The 
contractor  and  owner  cannot  deprive  the  material-man  of 
his  lien,  by  a  clause  in  the  contract,  by  which  the  contractor 
agrees  to  indemnify  the  owner  against  any  liens  taken  by 
persons  furnishing  materials  to  be  used  in  constructing  the 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS,  287 

building.  If  the  material-man  sues  the  owner,  and  obtains 
judgment  against  him,  and  against  the  property,  the 
owner  may  deduct  the  amount  of  the  judgment  from  any 
sum  due  the  contractor  on  the  contract  price. 

A  material-man  who  has  furnished  materials  to  the  original 
contractor  of  a  building,  to  be  used  by  him  in  its  construc- 
tion, is  only  entitled  to  be  paid  by  the  owner  of  the  building 
when  there  is  something  owing  and  unpaid  from  the  owner 
to  the  original  contractor.  (Decided  by  the  California  Dis- 
trict Court  of  Appeals,  in  the  case  of  McCue  vs.  Jackman, 
which  decision  is  printed  in  California  Appellate  Decisions, 
Volume  6,  No.  285,  page  437.) 

Section   332.— WHAT   IS   MEANT   BY   "OWNER."— 

When  the  law  requires  the  claim  of  lien  filed  in  the  Re- 
corder's office  to  state  "the  name  of  the  owner  or  reputed 
owner,  if  known,"  it  means  the  name  of  the  person  who  is 
the  owner  at  the  time  the  claim  is  filed.  The  law  does  not 
refer  to  the  owner  with  whom  the  contract  for  the  im- 
provement was  made,  or  to  the  owner  at  any  other  time 
than  at  the  date  of  filing  the  claim.  The  object  of  requir- 
ing the  claim  to  be  filed  in  order  to  perfect  the  lien  is  to 
give  notice  of  the  lien  to  those  interested  in  the  property 
upon  which  it  is  claimed ;  and,  as  the  owner  at  the  time 
of  filing  the  claim  is  the  party  to  be  affected  by  it,  rather 
than  one  who  has  parted  with  the  property  subsequent  to 
the  making  of  the  original  contract,  it  is  reasonable  to 
suppose  that  the  Legislature  intended  the  name  of  the 
owner  at  the  time  the  claim  is  filed,  rather  than  that  of 
any  previous  owner. 

Section  333.— REAL  OR  REPUTED  OWNER.— It  was 

not  the  intention  of  the  Legislature  that  in  the  claim  of 
lien  filed  for  record  the  claimant  must  state  the  name  of 
the  real  owner,  at  the  risk  of  losing  his  lien  if  it  shall  turn 
out  that  he  was  in  error.     The  provision  of  the  law  that 


288  BUSINESS   LAWS   FOh  BUSINESS   MEN.  .      , 

the  claimant  shall  give  the  "name  of  the  owner,  or  reputed 
owner,  if  known,"  implies  that,  if  he  does  not  know  the 
name  of  the  owner,  he  may  state  this  fact,  and  perfect  his 
lien  without  naming  an  owner;  and  also  that,  if  in  good 
faith  he  gives  the  name  of  a  reputed  owner,  he  will  not 
lose  his  lien  if  it  afterwards  appears  that  some  other  per- 
son was  the  owner. 

Section  334. — (In  former  editions  Section  334  applied  to 
the  allowance  of  attorney's  fees,  as  did  also  Section  313;  but 
as  the  Supreme  Court  has  declared  the  law  allowing  attor- 
ney's fees  unconstitutional  and  void,  Section  334  is  omitted 
from  the  Eighth  Edition.) 

Section  335.— DUTY  OF  OWNER  UPON  RECEIVING 
NOTICE  OF  MATERIAL-MAN'S  CLAIM.— Whether  a 
building  contract  is  recorded  or  not,  if  proper  notice  is  given 
to  the  owner  by  a  material-man  of  materials  furnished  by 
him  to  the  contractor,  it  is  the  duty  of  the  owner  to  with- 
hold from  the  contractor  sufficient  money  to  pay  the  claim, 
if  it  is  then  due  or  afterwards  becomes  due. 

Section  336.  —  PRIORITY  OF  MATERIAL-MAN'S 
CLAIM  OVER  MORTGAGE.— The  lien  of  a  material-man 
for  lumxber  furnished  for  a  dwelling  will  take  precedence 
of  a  mortgage  on  the  land  executed  immediately  upon  a 
conveyance  thereof,  but  after  the  time  when  the  materials 
were  commenced  to  be  furnished,  notwithstanding  the  mort- 
gage was  given  for  the  purchase  price  of  the  land. 

Section  337.  —  MINING  GROUND  --  PATENTED 
LAND. — A  lien  for  work  and  labor  may  be  taken  upon 
mining  ground  owned  by  a  patentee  of  the  United  States. 
The  words  "mining  claim"  in  the  statute  include  "mining 
ground"  and  all  "mines,"  whether  the  title  is  perfect  or 
not.  But  the  lien  will  not  extend  to  adjacent  land  which 
is  not  mineral  in  its  character.    The  words  "mining  claim," 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  289 

as  used  in  the  law,  have  no  reference  to  the  different  stages 
in  the  acquisition  of  the  Government  title.  It  includes  all 
mines  where  no  patent  has  been  issued,  as  in  the  case  of 
a  mining  claim  in  its  strict  sense,  and  also  where  the  patent 
has  issued. 

Section  338.— APPOINTMENT  OF  PAINTER  AS 
KEEPER. — The  appointment  by  the  owner  of  a  building 
of  a  painter  as  keeper,  and  the  fact  that  he  lives  in  it  while 
painting  it,  after  the  contractor  has  abandoned  the  work, 
does  not  constitute  an  "occupation"  or  "acceptance"  of  the 
building  by  the  owner  within  the  meaning  of  the  law. 

Section  339.— MATERIALS  MUST  BE  EXPRESSLY 
FURNISHED  FOR  STRUCTURE  CHARGED  WITH 
LIEN. — In  order  to  enforce  the  lien  of  a  material-man 
against  a  building  or  structure,  the  materials  must  not  only 
have  been  used  in  the  construction  of  the  building,  but 
they  must  have  been,  by  the  express  terms  of  the  contract, 
furnished  for  the  particular  building  on  which  the  lien  is 
claimed. 

Section  340.— ASSIGNMENT  OF  MECHANIC'S  LIEN. 

■ — A  mechanic's  lien  can  be  assigned,  after  the  claim  of  lien 
has  been  filed  for  record,  but  not  before.  Before  the  claim 
of  lien  has  been  filed  for  record,  the  right  to  the  lien  is  a 
mere  personal  privilege,  which  the  laborer,  mechanic,  or 
material-man  may  exercise  or  not,  as  he  sees  fit;  hence 
it  is  not  the  subject  of  assignment.  But  after  the  claim 
of  lien  has  been  filed  for  record,  it  can  be  assigned,  and 
the  assignee  will  have  all  the  rights  of  the  original  holder 
of  the  lien. 

Section  340a.— IF  BUILDING  IS  DESTROYED  BY 
FIRE,  NO  LIEN  CAN  AFTERWARDS  BE  FILED.— 

Where  a  building  in  course  of  construction  is  destroyed  by 
fire,  without  any  fault  of  the  owner,  before  any  mechanic's 


290  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

lien  has  been  filed  thereon,  the  party  who  furnished 
materials  for  the  building,  or  who  performed  labor  upon 
it,  can  have  no  lien  upon  the  land  upon  which  the  building 
was  being  constructed.  The  benefit  conferred  upon  the 
owner,  by  placing  the  labor  and  materials  in  his  building, 
is  the  true  consideration  in  law  for  conferring  the  right 
of  lien  upon  the  parties  furnishing  such  labor  and  materi- 
als. It  cannot  be  said  that  this  consideration  exists,  where 
the  building  is  destroyed  before  completion  and  before 
delivery  to  the  owner.  In  such  case,  the  owner  has  not 
derived  and  can  never  derive  any  benefit  from  the  labor 
and  materials  furnished.  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  Humboldt  Lumber  Mill  Com- 
pany Vs.  Edward  Crisp,  which  decision  is  printed  in  Volume 
29,  California  Decisions,  page  629.) 

Section  340b.— LIEN  FOR  POWER  SUPPLIED.— All 

persons  supplying  power  by  means  of  teams,  wagons,  vehi- 
cles, implements,  or  appliances,  used  either  immediately  in 
or  upon  the  construction,  alteration,  addition  to,  or  repair, 
either  in  whole  or  in  part,  of  any  of  the  improvements  or 
works,  mentioned  in  Section  285,  or  used  in  the  immediate 
transportation  of  the  materials  furnished  for  any  of  said 
purposes  and  actually  used  therefor,  have  a  lien  for  such 
power  supplied,  of  the  same  character  and  effect,  and  to  be 
enforced  in  the  same  way  as  that  granted  to  persons  furnish- 
ing materials.  The  liens  provided  for  by  this  section  rank 
second  to  liens  for  performing  manual  labor  (or  shall  be  of 
the  same  rank  and  entitled  to  be  treated  as  the  equivalent 
of  liens  for  materials  furnished),  and  the  rank  of  such  liens 
must  be  so  declared  by  the  court. 

Act  of  the  Legislature,  approved  April  19,  1909. 

Section  340c.— LIEN  FOR  WORK  DONE  BY  ORDER 
OF  HEALTH  OFFICER.— A  law  passed  in  1909  provides 
as  follows : 


BUSINESS   CONTRACTS  AND  LEGAL   OBLIGATIONS.  291 

"Any  health  officer  or  governing  board  of  any  city,  town 
or  sanitary  district,  having  served  written  notice  upon  the 
owner  or  reputed  owner  of  real  estate  upon  which  there  is  a 
dwelling  house,  and  such  owner  or  reputed  owner,  after 
thirty  days,  having  refused,  neglected  or  failed  to  connect 
such  dwelling  house,  together  with  all  toilets,  sinks,  and 
other  plumbing  therein,  properly  vented,  and  in  a  sanitary 
manner,  with  the  adjoining  street  sewer,  may  construct  the 
same  at  a  reasonable  cost,  and  the  person  doing  said  work 
at  the  request  of  such  health  officer  or  governing  board  has 
a  lien  upon  said  real  estate  for  his  work  done  and  materials 
furnished." 

Act  of  the  Legislature,  approved  April  19,  1909. 

Architects 

Section  341.— COMPENSATION  OF  ARCHITECT.— 

The  compensation  of  an  architect  who  draws  plans  and 
specifications  is  left  to  an  agreement  between  himself  and 
his  employer.  But  if  there  is  no  agreement  as  to  what  is 
to  be  paid  for  the  architect's  work,  the  law  will  allow  him 
a  reasonable  compensation  for  his  services.  What  is  a 
reasonable  compensation  will  depend  upon  the  character 
of  the  work  he  has  done,  and  will  be  determined  by  the 
knowledge  and  experience  of  persons  skilled  in  that  kind 
of  work.  Custom  may  also  enter  into  the  question  of  the 
architect's  compensation,  as  where  he  has  superintended 
the  construction  of  the  building,  and  it  is  the  local  custom 
to  pay  architects  so  much  for  such  service;  in  which  case 
it  will  be  presumed  that  his  services  of  like  character 
were  worth  the  customary  compensation,  unless  some  fact 
is  shown  which  makes  these  services  worth  more  or  less 
than  the  customary  rate. 

Section  342.— ARCHITECT'S  LIEN.— An  architect  has 
a  lien  on  the  building  for  his  pay,  provided  he  superintends 
the  erection  of  the  building.  He  must,  to  enforce  his  lien, 
file  the  same  claim  of  lien  in  the  office    of    the    County 


292  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

Recorder  as  is  required  of  laborers,  mechanics,  and  material- 
men, referred  to  in  preceding  Sections. 

Code  of  Civil  Procedure,  Section  1183. 

Section  343.— ARCHITECT  CANNOT  FILE  LIEN 
AGAINST  PUBLIC  BUILDING.— If  an  architect  pre- 
pares plans  and  specifications  for  a  public  building,  such  as 
a  Court  House,  Jail,  City  Hall,  Hall  of  Records,  or  School 
House,  he  cannot  file  a  lien  against  any  such  property,  and 
he  must  look  only  to  the  public  funds  provided  by  law  for 
such  public  improvements.  Justice  Temple,  in  the  Supreme 
Court  of  California,  in  the  case  of  Mayrhofer  against  the 
Board  of  Education  of  San  Diego,  in  which  case  it  was 
decided  that  in  California  no  lien  will  be  allowed  against 
a  public  building,  stated  the  reason  thus :  "The  claim  is 
made  that  public  buildings  are  included  both  in  the  word 
'property,'  used  in  the  Constitution,  and  in  the  phrase  'any 
building,'  used  in  the  Code,  and  therefore  it  must  neces- 
sarily follow  that  mechanics  and  material-men  are,  by  these 
provisions,  given  a  right  to  a  lien  upon  such  buildings. 
But  this  ignores  the  rule  of  statutory  construction,  that 
the  State  is  not  bound  by  general  words  in  a  statute, 
which  would  operate  to  trench  upon  its  sovereign  rights, 
injuriously  affect  its  capacity  to  perform  its  functions,  or 
establish  a  right  of  action  against  it.  The  Government 
was  created  and  shaped  by  the  Constitution.  It  is  not  an 
end  in  itself,  but  a  mere  instrumentality  for  public  serv- 
ices. Its  powers  and  functions  exist  only  for  the  people. 
One  of  its  functions  is  to  enact  laws  for  the  government 
of  the  inhabitants  within  its  limits,  thereby  affording  them, 
protection  and  advancing  their  general  welfare.  The  prop- 
erty it  holds  is  simply  to  enable  it  to  perform  the  services 
required  of  it.  It  is  as  much  devoted  to  public  use  as  are 
the  streets  and  highways,  though  in  a  different  way.  In- 
stead of  being  the  natural  and  obvious  conclusion,  that 
a  general  law  providing  remedies  for  private  individuals 
was  intended  to  enable  a  creditor  of  the  State  to  seize  this 


BUSINESS   CONTRACTS   AND  LEGAL   OBLIGATIONS.  293 

property  for  the  satisfaction  of  his  debt,  it  would  be  a  most 
unnatural  inference.  The  Constitution  has  itself  provided, 
as  the  only  means  which  the  State  has  for  the  payment  of 
its  debts,  the  exercise  of  the  sovereign  power  of  taxation. 
And  for  each  political  subdivision  the  rule  is  the  same. 
These  revenues  are  divided  into  specific  funds,  and  one 
furnishing  labor  or  material  to  the  State  knows  to  what 
he  must  look  for  payment.  He  becomes  a  creditor  of  a 
specific  fund,  and  has  no  rights  except  with  reference  to 
such  fund."  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Mayrhofer  vs.  Board  of  Education  of  San 
Diego,  which  decision  is  printed  in  Volume  89  of  the  Cali- 
fornia Reports,  page  110.) 

Section  344.— ARCHITECT  HAS  NO  LIEN  AGAINST 
MONUMENT  IN  PUBLIC  PARK.— Where  an  architect 
is  employed  by  a  contractor  for  the  erection  of  a  monument 
in  a  public  park,  he  has  no  lien  for  his  pay  upon  the  monu- 
ment or  the  land  on  which  it  is  erected.  This  question 
was  decided  by  our  Supreme  Court  in  the  matter  of  the 
Garfield  Monument,  in  Golden  Gate  Park,  San  Francisco. 
The  Supreme  Court  said:  "The  monument,  though  built 
by  private  contribution,  was  erected  upon  and  as  an  adorn- 
ment of  one  of  the  public  parks  of  the  municipality.  It 
was  affixed  to  the  freehold,  and  thus  became  a  part  of  the 
land,  the  property  of  the  municipality.  The  monument 
could  not  be  made  subject  to  a  lien."  (Decided  by  the 
Supreme  Court  of  California  in  the  case  of  Griffith  vs. 
Happersberger,  which  decision  is  printed  in  Volume  86  of 
the  California  Reports,  page  605.) 

Section  345.— PAYMENTS  MADE  ON  ARCHITECT'S 
CERTIFICATE.— Where  the  contract  provides  that  pay- 
ments shall  be  made  on  the  certificate  of  the  architect — 
who  is  required  by  the  contract,  among  other  things,  to 
certify  that  all  the  work  of  the  mechanics,  laborers,  and 
others  employed  by  the  original  contractor,  has  been  paid — 


294  BUSINESS   LAWS   FOR  BUSINESS    MEN. 

his  certificate  is  conclusive  of  the  rights  of  all  parties  con- 
cerned, unless  it  can  be  shown  that  it  was  obtained  by  the 
owner  by  collusion  or  fraud. 

Section  346.— ARCHITECT'S  CERTIFICATE  AS  TO 
LIENS. — Where  a  building  contract  provides  that  for  each 
of  the  payments  a  certificate  shall  be  obtained  from  the 
architect,  and  that  at  the  time  of  the  presentation  of  any 
certificate  there  shall  not  be  any  liens  against  the  building, 
and  a  lien  is  filed  before  the  last  installment,  it  does  not 
become  due  while  such  condition  exists;  and  the  amount 
of  the  lien  must  be  deducted  from  the  amount  due  the 
contractor. 

Section  347.— CONDITION  AS  TO  CERTIFICATE 
MAY  BE  WAIVED  BY  OWNER.— The  condition  in  a 
contract  for  the  erection  of  a  building,  that  all  installments 
of  payments  shall  be  made  upon  certificates  of  the  archi- 
tect that  the  materials  and  labor  have  been  furnished  in 
accordance  with  the  plans  and  specifications,  may  be  waived 
by  the  owner.  The  clause  as  to  the  production  of  the 
certificates  is  for  the  benefit  of  the  owner,  and  he  may 
waive  it  at  his  option,  and  accept  other  proofs. 

Section  348.— ARCHITECT'S  PLANS  PART  OF  CON- 
TRACT.— When  the  contract  mentions  the  architect's 
drawings  and  specifications,  and  refers  to  them  for  con- 
ditions of  the  agreement,  they  form  an  essential  part  of 
the  building  contract,  and  should  be  annexed  to  the  con- 
tract before  filing.  The  plans  and  specifications  cannot 
be  left  in  the  architect's  office,  and  at  the  same  time  be 
considered  as  annexed  to  the  contract.  If  intended  to 
co-operate  with  and  be  incorporated  into  the  formal  con- 
tract, the  drawings  and  specifications  must  be  in  fact  at- 
tached to  the  contract  and  filed  for  record  at  the  same  time". 

Section  349.— CONTRACT  VOID  FOR  FAILURE 
TO    RECORD    SPECIFICATIONS.— Where    a    building 


BUSINESS  CONTRACTS  AND  IJEGAL  OBLIGATIONS.  295 

contract  is  not  filed  in  the  Recorder's  office,  but  a  memo- 
randum is  filed  which  contains  within  itself  no  sufficient 
statement  of  the  general  character  of  the  work  to  be  done, 
but  refers  to  plans,  drawings,  and  specifications  remaining 
in  the  office  of  the  architect  and  which  are  not  recorded,  the 
contract  is  void,  and  mechanic  lienors  are  entitled  to  recover 
the  full  value  of  the  labor  done  and  materials  furnished, 
irrespective  of  the  contract  price. 

Section  350.— SERVICES  OF  ARCHITECT.— The  serv- 
ices of  an  architect,  in  the  preparation  of  drawings,  plans, 
and  specifications  for  a  building  and  in  superintending  its 
erection  are  "work  and  labor  upon  a  building,"  within  the 
meaning  of  the  mechanic's  lien  law.  The  architect  who 
superintends  the  construction  of  a  building  performs  labor 
as  truly  as  the  carpenter  who  frames  it,  or  the  mason  who 
lays  the  wall,  and  labor  of  a  most  important  character. 
The  language  quoted  makes  no  distinction  between  skilled 
and  unskilled  labor,  or  between  mere  manual  labor  and 
the  labor  of  one  who  supervises,  directs,  and  applies  the 
labor  of  others.  The  general  principle  upon  which  the 
lien  laws  proceed  is,  that  any  person  who  has  contributed 
by  his  labor  or  by  furnishing  materials,  to  a  structure 
erected  by  an  owner  upon  his  premises,  shall  have  a  claim 
upon  the  property  for  his  compensation.  An  architect  who 
prepares  the  drawings,  plans,  and  specifications  for  a  build- 
ing, and  superintends  its  erection,  may  as  truly  be  said  to 
perform  labor  on  it  as  any  one  who  takes  part  in  the  work 
of  construction. 

Section  351— LIABILITY  OF  ARCHITECT  FOR 
NEGLIGENCE. — An  architect  must  perform  his  services 
with  diligence  and  ordinary  care.  If  by  his  negligence 
long  delay  occurs  in  finishing  drawings,  plans,  and  speci- 
fications which  he  has  agreed  to  furnish,  and  the  other 
party  is  damaged  by  the  delay,  he  is  liable  for  the  loss. 
Or  if,  as  superintendent  he  neglects  his  duty,  to  the  detri- 
ment of  his  employer,  he  is  also  liable  to  him  in  damages. 


296  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

The  architect  is  bound  to  devote  to  his  employer  the  skill 
and  energy  he  possesses,  and  will  be  liable  in  damages  for 
any  failure  in  this  respect. 

Section  352.— CONTRACT  FOR  PERCENTAGE  ON 
COST  OF  BUILDING.— Under  a  contract  with  an  archi- 
tect to  furnish  the  necessary  drawings,  specifications,  and 
details  for  the  construction  of  a  building,  for  a  certain  per- 
centage of  the  total  cost  of  the  construction  of  the  building, 
the  architect,  after  furnishing  the  drawings,  etc.,  in  case 
■  his  employment  is  terminated  before  the  completion  of  the 
building,  is  entitled  to  the  agreed  commission  on  the  total 
cost  of  the  building.  This  was  determined  by  our  Su- 
preme Court,  in  a  case  where  Charles  I.  Havens  sued  Annie 
Donahue,  at  San  Francisco,  for  a  commission  of  two  and  a 
half  per  cent  upon  the  total  cost  of  the  building,  according 
to  his  contract  with  Mrs.  Donahue.  He  was  paid  a  portion 
of  the  commission,  but  his  employment  was  terminated 
before  the  building  was  completed,  and  he  sued  to  recover 
the  balance.  Mrs.  Donahue  contended  that  Havens  was 
only  entitled  to  recover  his  commission  upon  the  cost  of 
construction  so  far  as  the  building  had  proceeded  at  the 
time  his  employment  was  terminated.  The  Supreme  Court 
decided  that  the  architect  in  question  had  nothing  to  do 
with  the  construction  of  the  building.  His  contract  was 
simply  to  furnish  the  plans,  drawings,  and  specifications, 
and  this  he  did.  (Decided  by  the  Supreme  Court  of  Cali- 
fornia in  the  case  of  Havens  vs.  Donahue,  which  decision 
is  printed  in  Volume  111  of  the  California  Reports,  page 
297.) 

Section  353.— LIABILITY  FOR  DISCLOSING  IN- 
TENTION OF  OWNER.— An  architect  employed  to  fur- 
nish plans  for  the  erection  of  a  building  on  a  site  on  which 
there  is  another  building,  occupied  by  tenants,  is  not  liable 
to  the  owner,  by  telling  people  of  the  intended  erection  of 
the  new  building — the  architect  having  neither  contracted 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  297 

nor  been  requested  to  keep  such  a  fact  secret — for  the  loss 
of  rent  caused  by  the  vacation  of  the  building  by  the  tenants. 

Section  354.— TIME  SPENT  ON  PLANS  AND  SPECI- 
FICATIONS.— Where  an  architect  is  compelled  to  sue  for 
his  compensation,  and  there  is  no  agreement  fixing  the 
amount  of  his  pay,  he  may  prove  the  reasonable  value  of 
his  services.  And  evidence  as  to  the  length  of  time  spent 
by  an  architect  on  certain  plans  and  specifications  is  ad- 
missible on  the  question  of  the  value  of  his  services  in 
preparing  them,  the  jury  not  being  limited  to  a  considera- 
tion of  the  expert  testimony  on  that  question. 


Liens  for  Salary  and  Wages 

Section  355.— PREFERRED  CLAIMS  FOR  SALARY 
AND  WAGES. — The  law  of  California  provides  for  cer- 
tain liens  for  salary  and  wages,  which  do  not  come  in  the 
ciass  of  mechanic's  liens,  because  including  other  persons 
in  other  occupations.  In  all  assignments  for  the  benefit 
of  creditors,  or  in  proceedings  for  insolvency,  the  wages 
and  salaries  of  miners,  mechanics,  salesmen,  servants,  clerks, 
or  laborers,  are  preferred  claims.  It  must  appear  that  the 
services  were  rendered  or  work  done  within  the  previous 
sixty  days.  These  claims  will  be  preferred  to  the  amount 
of  one  hundred  dollars  each,  and  must  be  paid  before  any 
other  creditors  of  the  person  who  makes  the  assignment. 
Code  of  Civil  Procedure,  Section  1204. 

Section  356.— PREFERRED  CLAIMS  FOR  WAGES 
AND  SALARIES  AGAINST  ESTATES.— In  case  of  the 
death  of  any  employer,  the  wages  of  each  miner,  mechanic, 
salesman,  clerk,  servant,  or  laborer,  who  has  rendered 
services  or  performed  work  within  the  sixty  days  next  pre- 
ceding the  death  of  the  employer,  not  exceeding  one  hun- 
dred dollars  in  amount,  are  preferred  claims  against  the 
estate,  and  must  be  paid  by  the  executor  or  administrator 


298  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

of  the  estate  before  any  other  claims,  except  the  funeral 
expenses,  expenses  of  the  last  sickness,  expenses  of  adminis- 
tration, and  family  allowance. 

Code  of  Civil  Procedure,  Section  1205. 

Section  357.— WAGES  AND  SALARIES  IN  CASE  OF 
ATTACHMENT  AND  EXECUTION.— In  cases  of  at- 
tachments and  executions  (not  issued  in  suits  for  wages) 
served  on  the  employer  of  any  miners,  mechanics,  sales- 
men, servants,  clerks,  or  laborers,  the  latter  may  give  notice 
to  the  creditor  and  the  officer  levying  the  attachment  or 
execution  of  their  claims  for  wages  or  salaries ;  the  notice 
may  be  given  at  any  time  before  the  actual  sale  of  the 
property  levied  on,  or,  in  the  event  of  a  levy  upon  money, 
at  any  time  before  the  transfer  of  such  money  under  ex- 
ecution. After  the  notice  is  given,  unless  the  claim  is 
disputed,  by  the  debtor  or  a  creditor,  the  person  presenting 
to  the  person  claiming  wages  or  salary  the  amount  he  is 
entitled  to  receive  for  services  rendered  within  the  sixty 
days  next  preceding  the  levy  of  the  attachment  or  execu- 
tion, not  exceeding  one  hundred  dollars,  the  officer  must 
make  this  payment  out  of  the  proceeds  of  sales  of  prop- 
erty, or  out  of  money  coming  into  his  hands  by  the  levy. 
The  claim  for  wages  or  salary  referred  to  must  be  sworn  to 
by  the  person  making  the  claim.  If  the  claim  as  made  is 
disputed,  by  the  debtor  or  a  creditor,  the  person  presenting 
the  claim  must  commence  a  suit  on  it  within  ten  days ;  the 
officer  in  the  meantime  holding  enough  money  to  pay  the 
claim  until  the  determination  of  the  suit. 

Code  of  Civil  Procedure,  Section  1206. 

Vendor's  Lien 

Section  358.— LIEN  OF  SELLER  OF  REAL  PROP- 
ERTY.— One  who  sells  real  property  has  a  vendor's  lien, 
independent  of  possession,  for  so  much  of  the  price  as 
remains  unpaid  and  unsecured.     The  vendor  may  have  the 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  299 

personal  obligation  of  the  buyer,  but  this  is  not  a  security 
which  will  defeat  his  vendor's  lien. 
Civil  Code,  Section  3046. 

Section  359.— WHEN  TRANSFER  OF  CONTRACT 
WAIVES  VENDOR'S  LIEN.— The  seller  of  real  estate 
may  waive  his  vendor's  lien  for  the  purchase  price.  And 
where  the  buyer  has  given  to  the  seller  a  written  contract 
for  payment  of  all  or  part  of  the  price,  and  the  seller  assigns 
and  transfers  the  contract  to  a  third  person,  this  will  be 
considered  a  waiver  of  his  vendor's  lien  to  the  extent  of 
the  sum  payable  under  the  contract.  But  a  transfer  of 
the  contract,  in  trust  to  pay  debts,  and  the  surplus  to  belong 
to  the  seller,  is  not  a  waiver  of  the  lien. 
Civil  Code,  Section  3047. 

Section    360.— EXTENT    OF    VENDOR'S    LIEN.— A 

vendor's  lien  is  valid  against  every  one  claiming  under  the 
debtor,  except  a  purchaser  or  encumbrancer  in  good  faith 
and  for  value.  If  the  buyer  transfers  the  property  to  one 
who  has  no  notice  of  the  lien  of  the  vendor,  no  notice  or 
knowledge  that  any  part  of  the  price  remains  unpaid,  and 
who  pays  a  valuable  consideration  for  the  property,  and  acts 
throughout  the  transaction  in  good  faith,  the  vendor  will 
lose  his  lien.  So,  as  to  a  mortgagee,  where  the  vendee  has 
given  a  mortgage  on  the  property  to  one  who  has  no  notice 
of  the  real  facts,  and  takes  the  mortgage  in  good  faith  and 
for  value,  the  vendor  cannot  assert  his  lien  against  the 
mortgagee. 

Civil  Code,  Section  3048. 

Section  361.— LIEN  OF  SELLER  OF  PERSONAL 
PROPERTY. — One  who  sells  personal  property  has  a  spe- 
cial lien,  dependent  on  possession,  for  its  price,  if  the  prop- 
erty is  in  his  possession  when  the  price  becomes  payable. 
The  lien  may  be  enforced  in  the  same  manner  as  when 
property  is  pledged.       That  is  to  say,  he  may  store  the 


300  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

property,  and  sue  the  vendee  for  the  price ;  or  he  may  resell 
the  property,  to  the  best  advantage,  and  recover  from  the 
vendee  the  difference  between  the  contract  price  and  the 
price  obtained  on  the  resale. 

Civil  Code,  Section  3049. 


Liens  on  Personal  Property 

Section  362.— LIEN  FOR  SERVICES.— Every  person 
who  renders  any  service  to  the  owner  of  personal  property, 
in  labor  or  skill,  employed  for  the  protection,  improvement, 
safe-keeping,  or  transportation  of  the  property,  has  a  lien 
upon  it,  dependent  on  possession,  for  the  compensation  due 
to  him  from  the  owner  for  such  services. 
Statutes  of  1901,  page  270. 

Section  363.— LIEN  OF  LIVERY  STABLE  PROPRI- 
ETORS.— Livery  or  boarding  or  feed  stable  proprietors 
have  a  lien,  dependent  on  possession,  for  their  compensa- 
tion for  caring  for,  boarding,  and  feeding  horses  and  stock. 
In  order  for  the  lien  to  attach,  however,  it  is  necessary  that 
the  animal  be  placed  with  the  livery  stable  proprietor  by 
its  owner,  or  by  some  one  having  authority  from  him. 
Therefore,  if  a  thief  places  a  stolen  horse  in  a  livery  stable, 
or  if  the  horse  is  placed  there  by  anybody  not  having  au- 
thority from  the  owner,  the  keeper  of  the  stable  has  no 
lien  on  the  horse.  A  lien  can  generally  be  created  only 
by  the  owner  of  property,  or  by  his  agent.  Hence,  one 
having  possession  of  a  horse  under  an  agreement  to  pur- 
chase, by  which  agreement  the  seller  retains  the  title  until 
payment  is  made,  cannot,  as  against  the  seller,  create  a 
lien  for  its  board  and  care.  But  where  the  owner  or  his 
agent  leaves  a  horse,  buggy,  and  harness  in  a  livery  stable, 
the  livery  stable  keeper  has  a  lien  on  all  the  property — the 
horse,  buggy,  and  harness — on  account  of  his  feed  and  care 
of  the  property.  He  should  give  notice  to  the  owner  of 
the  amount  of  his  charges,  and  that  if  not  paid  he  will  sell 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  301 

the  property.  If,  after  giving  the  notice,  the  charges  are 
not  paid,  the  livery  stable  keeper  can  sell  the  property  and 
retain  enough  to  pay  his  charges  and  the  costs  of  sale. 
If  any  amount  remains,  after  paying  his  charges  and  the 
costs  of  sale,  the  owner  of  the  property  is  entitled  to  the 
balance.  The  law  does  not  specify  any  particular  form 
of  notice  to  the  owner,  nor  any  particular  time  of  notice; 
the  notice  given  should  be  reasonable  in  time,  so  as  to  give 
the  owner  a  fair  opportunity  to  come  and  pay  the  charges 
and  release  his  property  from  the  lien. 
Statutes  of  1901,  page  270. 

Section  363a.— DEFRAUDING  LIVERY  STABLE 
KEEPERS. — There  is  a  law,  making  it  a  misdemeanor 
to  defraud  a  livery  stable  keeper,  the  punishment  for 
which  may  be  a  $500  fine,  or  imprisonment  in  the  County 
Jail  for  six  months.  Any  person  who  obtains  any  livery 
hire  or  feed,  without  paying  for  it,  with  intent  to  defraud; 
or  who  obtains  credit  by  the  use  of  any  false  pretense; 
or  who  abuses  a  horse,  or  keeps  it  longer  or  drives  it 
further  than  agreed  upon;  or  who  allows  a  feed  bill  to 
accumulate  against  his  property,  is  guilty  of  a  misdemeanor. 
But  in  all  such  cases  the  intent  to  defraud  must  be  proved 
as  a  fact. 

Statutes  of  1903,  page  157. 

Section  364.— LIEN  FOR  PASTURING  HORSES  OR 
STOCK. — A  farmer  or  ranchman  has  a  lien  for  pasturing 
horses  or  stock,  dependent  on  possession,  for  the  amount 
of  his  compensation.  If  the  pasturage  is  not  paid  when 
due,  notice  should  be  given  to  the  owner  of  the  stock  that 
the  pasturage  charges,  stating  the  amount,  must  be  paid 
at  a  certain  time,  or  the  stock  will  be  sold.  The  notice 
must  be  for  a  reasonable  time,  according  to  circumstances, 
and  if  the  pasturage  charges  are  not  then  paid,  the  stock 
can  be  sold  to  pay  the  bill. 

Statutes  of  1901,  page  270. 


302  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  365.— LIEN  OF  LAUNDRY  PROPRIETORS. 

■ — Laundry  proprietors  and  persons  conducting  a  laundry 
business  have  a  general  lien,  dependent  on  possession,  upon 
all  personal  property  in  their  hands  belonging  to  a  cus- 
tomer, for  the  balance  due  them  for  laundry  work. 
Statutes  of  1901,  page  270. 

Section  366.— LIEN  FOR  REPAIRING  PERSONAL 
PROPERTY. — A  person  who  makes,  alters,  or  repairs  any 
article  of  personal  property,  at  the  request  of  the  owner 
or  legal  possessor  of  the  property,  has  a  lien  on  the  prop- 
erty for  his  reasonable  charges  for  work  done  and  materials 
furnished;  and  he  may  keep  possession  of  the  property 
until  his  charges  are  paid.  If  the  charges  are  not  paid 
within  two  months  after  the  work  is  done,  the  property  may 
be  sold  at  public  auction,  by  giving  ten  days'  public  notice 
of  the  sale  in  some  newspaper  published  in  the  county  in 
which  the  work  was  done.  If  there  is  no  newspaper  pub- 
lished in  the  county,  the  notice  must  be  posted  up  in  three 
of  the  most  public  places  in  the  town  where  the  work  was 
done,  for  ten  days  previous  to  the  sale.  The  proceeds  of 
the  sale  must  be  applied  to  the  payment  of  the  lien  and 
expenses  of  selling  the  property,  and  if  there  is  any  balance 
left,  it  must  be  paid  over  to  the  owner  of  the  property. 
Civil  Code,  Section  3052. 

The  right  of  a  person  performing  labor  on  personal  prop- 
erty to  a  lien  thereon  exists  only  in  favor  of  the  person  who 
does  the  work  directly  under  the  contract  with  the  owner, 
or  some  one  authorized  to  act  for  him. 

Where  an  owner  of  tan  bark  contracts  with  a  person  to 
cut  and  deliver  the  same,  and  the  latter  employs  persons  to 
do  the  work,  such  persons  have  no  lien  upon  the  bark  for 
their  services.  Possession  of  tan  bark  by  employees  of  a 
contractor,  who  are  engaged  in  cutting  the  same,  is  simply 
that  of  employees,  and  not  that  exclusive  and  unconditional 
possession  which  is  necessary  in  order  to  constitute  a  basis 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  '603 

of  lien.  (Decided  by  the  Supreme  Court  of  California,  in  the 
case  of  Quist  vs.  Hill,  which  decision  is  printed  in  Volume 
37,  California  Decisions,  page  41.) 

Section  366a.— SALE  OF  PROPERTY.— The  sale  of 
property  for  any  of  the  liens  specified  in  Sections  362,  363, 
363a,  364,  365,  and  366,  is  provided  for  definitely  by  a  law 
passed  in  1907.  The  law  provides  that  if  a  person  entitled 
to  the  lien  is  not  paid  the  amount  due  him  within  twenty 
days  after  it  becomes  due,  then  he  may  proceed  to  sell  the 
property,  or  so  much  thereof  as  may  be  necessary  to  satisfy 
his  lien  and  costs  of  sale,  at  public  auction.  Ten  days'  pre- 
vious notice  of  sale  must  be  given  by  advertising  in  a  news- 
paper. The  proceeds  of  the  sale  must  be  applied  to  the 
discharge  of  the  lien  and  the  cost  of  keeping  and  selling 
the  property;  and  the  remainder  if  any  must  be  paid  over 
to  the  owner  of  the  property.  This  law  applies  to  all  cases 
mentioned  in  Sections  362  to  366,  inclusive.  j 

Act  of  the  Legislature,  in  eflFect  May  1,  1907. 

Section  367.— OFFICER'S  LIEN.— An  officer  who  levies 
an  attachment  or  execution  upon  personal  property  ac- 
quires a  special  lien,  dependent  on  possession,  upon  such 
property,  which  authorizes  him  to  hold  it  until  the  writ 
is  discharged  or  satisfied,  or  until  a  judicial  sale  of  the 
property  is  had. 

Civil   Code,  Section  3057. 

Logger's  Lien 

Section  368.— LIEN  FOR  LABOR  ON  LOGS  AND 
LUMBER. — All  persons  who  labor  at  cutting,  hauling, 
rafting,  or  drawing  logs,  or  lumber,  or  who  perform  any 
labor  in  or  about  a  logging-camp  necessary  for  the  getting 
out  or  transportation  of  logs  or  lumber,  have  a  lien  on 
the  property  for  the  amount  due  for  their  personal  services. 
This  lien  takes  precedence  of  all  other  claims,  and  con- 
tinues for  thirty  days  after  the  logs  or  lumber  arrive  at 
the  place  of  destination,  for  sale  or  manufacture.     If  logs 


304  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

are  rafted  down  a  river,  to  a  sawmill  for  manufacture ;  or 
if  logs  are  hauled  on  a  railroad,  to  the  mill ;  in  either  case 
the  lien  of  the  logger  continues  for  thirty  days  after  the 
logs  reach  the  mill. 

Section  369.— CLAIM  OF  LIEN  TO  BE  FILED  FOR 
RECORD. — Within  twenty  days  after  the  completion  of 
his  work,  if  a  logger  or  laborer  in  the  woods  or  camps 
desires  to  take  advantage  of  the  lien  law,  he  must  file  for 
record  in  the  office  of  the  Recorder  of  the  county  a  claim, 
sworn  to  by  him,  containing  a  statement  of  his  demand, 
after  deducting  all  just  credits  and  offsets ;  the  time  within 
which  the  labor  was  done;  the  name  of  the  person  or  per- 
sons for  whom  he  worked;  the  place  where  the  logs  or 
timber  upon  which  the  lien  is  claimed  are  believed  to  be 
situated,  and  how  they  are  marked ;  the  name  of  the  reputed 
owner ;  and  the  name  of  the  reputed  owner  of  the  land  from 
which  the  logs  were  cut  and  hauled. 

Section  370.— WHEN  SUIT  MUST  BE  COMMENCED 

TO  FORECLOSE  LIEN.— After  the  claim  of  lien  has 
been  filed,  a  suit  to  foreclose  the  lien  must  be  commenced 
within  twenty-five  days ;  and  if  this  is  not  done,  the  lien 
will  be  at  an  end. 

Section  371. —  ATTACHMENT  AS  FURTHER  SE- 
CURITY.— The  law  provides,  that  when  the  suit  to  fore- 
close the  lien  has  been  commenced,  the  logger  may  have 
the  logs  or  timber  attached  as  further  security  for  the 
payment  of  any  judgment  he  may  recover  in  the  suit.  The 
writ  of  attachment  is  issued  by  the  Clerk  when  he  issues 
the  summons,  or  it  may  be  issued  at  any  time  afterwards, 
upon  receiving  an  affidavit  from  the  plaintiff  showing  the 
defendant's  indebtedness  to  him,  and  that  the  attachment 
is  asked  for  in  good  faith.  The  Sheriff  will  levy  the  at- 
tachment by  taking  the  logs  or  timber  into  his  possession, 
and  will  be  bound  to  keep  possession  of  the  property  unless 
the  defendant  gives  him  security  to  pay  the  judgment,  if 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  305 

any  is  obtained  against  him  in  the  suit.  If  the  defendant 
gives  the  security,  the  Sheriff  will  release  the  property, 
free  from  the  lien  ;  for  if  the  logger  obtains  good  security 
that  his  claim  will  be  paid,  if  he  gets  a  judgment,  this  is  all 
he  needs,  and  the  lien  will  no  longer  be  necessary. 

Section  372.— UNDERTAKING  ON  ATTACHMENT. 

— Before  the  attachment  will  issue,  a  bond  will  have  to  be 
filed  with  the  Clerk,  in  a  sum  not  less  than  two  hundred 
dollars,  for  costs  and  damages  if  the  defendant  wins  the  suit. 

Section  373.— EXTENT  OF  THE  LIEN.— The  logger's 
lien  in  no  case  extends  beyond  the  limits  of  the  county  in 
which  the  logs  or  timber  in  controversy  were  cut. 

Section  374.— ATTACHMENT  NOT  NECESSARY  TO 
HOLD  LIEN. — The  attachment  of  the  logs  and  timber  is 
not  necessary  to  hold  the  lien.  It  is  at  the  option  of  the 
logger  whether  any  attachment  at  all  shall  be  issued,  and 
it  is  only  provided  as  additional  security,  and  for  the  pur- 
pose of  compelling  the  defendant  to  give  a  bond  for  the 
amount  of  the  claim.  The  logger  may  file  his  claim  of 
lien,  and  then  proceed  and  foreclose  it,  without  getting 
out  any  attachment  at  all. 

Statutes  of  1877,  page  747;  Statutes  of  1880,  page 
38;  Statutes  of  1887,  page  53. 

Liens  of  Person^  Working  on  Threshing 
Machines 

Section  375.— PERSONS  ENTITLED  TO  THE  LIEN. 

— Every  person  performing  work  or  labor  with  or  about 
any  threshing-machine  or  engine,  horse-power,  wagon,  or 
other  of  the  appliances,  while  engaged  in  threshing,  has  a 
lien  on  the  property  to  the  extent  of  the  value  of  his 
services. 

Section  376.— EXTENT  OF  LIEN.— This  lien  extends 
for  ten  days  after  the  claimant  has  ceased  such  work  or  labor. 


306  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  377.— SUIT  MUST  BE  COMMENCED 
WITHIN  TEN  DAYS.— The  lien  expires  unkss  a  suit 
to  recover  the  amount  of  the  claim  is  commenced  within 
ten  days  after  the  party  ceases  work. 

Section  378.— PROCEEDS  OF  SALE  DISTRIBUTED 
PRO  RATA. — In  any  suit  to  enforce  a  lien  on  a  threshing- 
machine  outfit,  when  a  judgment  is  obtained  in  favor  of 
the  plaintiff,  and  the  property  is  sold,  the  proceeds  of  the 
sale  are  required  by  the  law  to  be  distributed  pro  rata  to 
all  judgment  creditors  who  have,  within  ten  days,  begun 
suits  to  recover  judgments  for  the  amount  due  them  for 
such  work.  The  meaning  of  this  is,  that  where  there  are 
a  number  of  laborers  who  have  filed  their  suits,  they  shall 
all  share  alike  in  the  final  disposition  of  the  property.  If 
the  property  will  sell  for  enough  to  pay  all  in  full,  they 
will  each  receive  full  pay;  but  if  the  proceeds  of  the  sale 
are  not  sufficient  to  pay  all  in  full,  then  each  must  lose 
in  proportion  to  the  amount  of  his  claim. 

Section  379.— NO  NOTICE  REQUIRED.— To  enforce  a 
lien  upon  a  threshing-machine,  no  notice  is  required  to  be 
recorded,  or  given  to  anybody.  The  law  creates  the  lien, 
without  any  formality,  and  the  only  thing  required  of  the 
laborer  is,  that  he  shall  commence  suit  within  ten  days 
after  he  quits  work. 

Section  380.— LIEN  IS  ASSIGNABLE.— The  lien  of 
laborers  on  or  with  a  threshing-machine  is  assignable.  All 
may  assign  to  one  person,  before  suit  is  brought,  and  the 
assignee  may  bring  suit  upon  all  the  claims  at  the  same 
time. 

Statutes  of   1885,  page   109. 

Liens  in  Favor  of  Owners  of  Stallions,  Jacks 
and  Bulls 

Section  381.— PERSONS  ENTITLED  TO  THE  LIEN. 
— There  had  been  so  many  complaints  by  owners  of  stal- 
lions,   jacks,    and    bulls,    kept    for    breeding-  purposes,    of 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  307 

inability  to  collect  their  charges  for  services  rendered,  that 
the  Legislature  was  induced  to  pass  a  law  giving  them  a 
lien  upon  the  animals  served.  This  law  provides  that  any 
owner  or  person  having  in  charge  a  stallion,  jack,  or  bull, 
used  for  propagating  purposes,  shall  have  a  lien  for  the 
agreed  price  for  the  service  of  such  stallion,  jack,  or  bull, 
upon  any  mare  or  cow  served  for  pay  and  upon  their  off- 
spring. 

Section  382.— CLAIM  TO  BE  FILED.— A  claim  must 
be  filed  in  the  office  of  the  County  Recorder,  in  the  county 
where  the  mare  or  cow  is  served  or  kept,  which  must  con- 
tain a  particular  description  of  the  mare  or  cow  served ; 
the  date  and  place  of  serving;  the  name  of  the  owner  or 
reputed  owner  of  the  mare  or  cow  served ;  a  proper  descrip- 
tion, by  name  or  otherwise,  of  the  stallion,  or  jack,  or  bull, 
performing  the  service,  and  the  name  of  the  owner  or  per- 
son in  charge  of  it;  and  the  amount  of  the  lien  claimed. 

Section  383.— NOTICE  TO  SUBSEQUENT  PUR- 
CHASERS.— The  claim  of  lien,  when  filed,  operates  as 
notice  to  subsequent  purchasers  and  encumbrancers  of  the 
mare  or  cow  for  the  term  of  one  year  from  the  date  of  the 
filing  of  the  claim. 

Section  384.— FALSE  REPRESENTATIONS  INVAL- 
IDATE LIEN. — Any  wilfully  false  representations  con- 
cerning the  breeding  or  pedigree  of  the  stallion,  jack,  or 
bull,  made  or  published  by  the  owner  or  person  in  charge 
of  it,  will  invalidate  the  lien. 

Section  385.— SUITS  TO  FORECLOSE.— Suits  to  fore- 
close these  liens  may  be  brought  in  any  county  where  the 
mare  or  cow,  or  the  offspring  from  such  service,  may  be 
found. 

Section  386.— ATTACHMENT  AS  SECURITY.— Plain- 
tiff may  have  an  attachment  put  on  the  mare  or  cow,  or 
their  offspring,  at  the  time  of  issuing  the  summons,  or  at 
any  time  afterwards  before  judgment,  as  further  security 


308  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

for  his  pay ;  an  undertaking  on  attachment  is  required 
to  be  given,  before  the  attachment  will  issue ;  and  the 
Sheriff  must  then  take  into  his  possession  the  mare  or  cow, 
or  offspring,  and  keep  them  pending  the  suit,  unless  the 
owner  or  person  in  charge  of  the  animals  gives  him  a  bond 
to  pay  the  judgment,  if  one  should  be  obtained. 
Statutes  of  1891,  page  90. 

Damages  for  Breach  of  Contract 

Section  387.— MEASURE  OF  DAMAGES.— The  meas- 
ure of  damages  allowed  by  the  law  of  this  State,  for  the 
breach  of  an  obligation  arising  from  contract,  is  the  amount 
which  will  compensate  the  injured  party  for  all  the  detri- 
ment proximately  caused  by  the  breach,  or  which  in  the 
ordinary  course  of  things  would  be  likely  to  result. 
Civil  Code,  Section  3300. 

Section  388.— BREACH  OF  CONTRACT  TO  PAY 
MONEY. — The  detriment  caused  by  the  breach  of  an  ob- 
ligation to  pay  money  only  is  the  amount  due  by  the  terms 
of  the  obligation,  with  interest.  The  holder  of  a  note 
may  be  greatly  damaged  by  the  failure  of  the  other  party 
to  pay  it;  for  he  may  have  to  borrow  money  himself  at 
high  rates  of  interest;  or  he  may  be  unable  to  borrow,  and 
thus  incur  ruinous  loss  which  might  have  been  avoided  if 
his  debtor  had  paid  him.  Yet  the  law  considers  that  to 
allow  any  damages,  further  than  the  amount  due  on  the 
contract,  would  be  to  fix  a  measure  of  damages  too  un- 
certain and  unreliable  to  meet  the  requirements  of  da^ly 
business  and  commercial  life;  and,  therefore,  the  law  has 
placed  the  measure  of  damages  for  breach  of  a  contract 
for  the  payment  of  money  only  at  the  amount  due  by  the 
terms  of  the  obligation,  with  interest. 
Civil  Code,  Section  3302. 

Section  389.— BREACH  OF  WARRANTY  OF  TITLE. 

— When  one  sells  property  and  warrants  the  title,  and  the 
title  proves  bad,  the  law  allows  the  grantee  the  price  paid 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  309 

to  the  grantor,  if  the  title  to  the  whole  property  is  bad ;  or, 
if  there  proves  to  be  no  title  to  a  part  only  of  the  prop- 
erty, such  proportion  of  the  price  as  that  portion  bears  to 
the  whole  property;  and,  also,  interest  at  seven  per  cent 
on  the  price  paid  for  the  time  during  which  the  grantee 
derived  no  benefit  from  the  propert}'-,  not  exceeding  five 
years. 

Civil  Code,  Section  3304. 

Section  390.— DAMAGES  IN  CASE  OF  EXCHANGE 
OF  LANDS. — When  lands  are  exchanged,  and  the  title 
to  one  of  the  tra.cts  fails,  which  in  the  exchange  between 
the  parties  was  conveyed  with  general  warranty,  a  recovery 
may  be  had  against  the  grantor  of  that  tract  for  the  value 
of  the  land,  with  interest  and  costs. 

Section  391.— BREACH  OF  AGREEMENT  TO  CON- 
VEY REAL  PROPERTY.— The  damages  caused  by  the 
breach  of  an  agreement  to  convey  an  estate  in  real  prop- 
erty is  the  price  paid,  and  the  expenses  properly  incurred 
in  examining  the  title  and  preparing  the  necessary  papers, 
with  interest. 

Civil  Code,  Section  3306. 

Section  392.— BREACH  OF  AGREEMENT  TO  BUY 
REAL  PROPERTY.— The  damages  caused  by  the  breach 
of  an  agreement  to  buy  an  estate  in  real  property  is  deemed 
to  be  the  excess,  if  any,  of  the  amount  which  would  have 
been  due  to  the  seller  under  the  contract,  over  the  value 
of  the  property  to  him. 

Civil  Code,  Section  3307. 

Section  393.— BREACH  OF  WARRANTY  OF  TITLE 
TO  PERSONAL  PROPERTY.— Where  the  title  to  per- 
sonal property  is  warranted,  and  there  proves  to  be  no 
title,  the  damage  is  the  value  of  the  property  to  the  buyer, 
when  he  is  deprived  of  its  possession,  together  with  any 


310  BUSINESS  LAWS  FOE  BUSINESS  MEN. 

costs  which  he  Has  become  liable  to  pay  in  a  suit  brought 
by  the  true  owner  to  recover  the  property. 
Civil  Code,  Section  3312. 

Section  394.— DAMAGES  FOR  BREACH  OF  WAR- 
RANTY OF  QUALITY  OF  PERSONAL  PROPERTY. 

— Where  personal  property  sold  is  warranted  to  be  of  a 
certain  quality,  and  turns  out  not  to  be  of  that  quality  at 
all,  the  buyer  is  entitled  to  damages  for  the  difference  in 
value  between  what  he  bargained  for  and  that  which  was 
actually  delivered  to  him. 

Section  395.— BREACH  OF  WARRANTY  FOR  SPE- 
CIAL PURPOSE. — If  personal  property  is  sold  for  a  spe- 
cial purpose,  as  a  machine  designed  to  do  certain  work,  and 
is  warranted  fit  for  that  purpose,  and  turns  out  to  be  unlit, 
the  buyer  is  entitled  to  damages ;  and  his  damages  will  be 
the  difference  between  the  value  of  the  thing  as  it  is  and 
its  value  as  it  would  have  been  had  it  been  as  warranted. 
And  if  the  buyer,  before  he  discovers  that  the  property 
is  unfit  for  the  purpose  for  which  it  was  warranted,  makes 
an  effort  in  good  faith  to  use  it  for  that  purpose,  he  will 
also  be  entitled  to  damages  for  his  loss  in  trying  to  make 
use  of  it. 

Civil  Code,  Section  3314. 

Section  396.— DAMAGES  FOR  BREACH  OF  CAR- 
RIER'S OBLIGATIONS.— A  carrier  of  freight,  passen- 
gers, or  messages,  is  bound  to  accept  them  when  tendered 
to  it.  If  it  refuses,  the  person  requiring  the  service,  and 
who  is  thus  compelled  to  look  elsewhere  to  have  it  per- 
formed, is  entitled  to  damages,  being  the  difference  between 
the  rate  which  the  first  carrier  had  a  right  to  charge  and 
the  rate  which  he  was  afterward  compelled  to  pay.  If  a 
carrier  of  freight  fails  to  deliver  it,  the  law  makes  the  car- 
rier liable  in  damages,  and  fixes  the  measure  of  the  dam- 
age at  the  value  of  the  property  at  the  place  and  on  the 


BUSINESS   CONTRACTS  AND   LEGAL.   OBLIGATIONS.  311 

day  at  which  it  should  have  been  delivered,  deducting 
whatever  the  freight  charges  would  have  been.  So,  if 
freight  is  lost  on  the  way,  the  carrier  will  be  liable  to  pay 
such  damages.  The  carrier  and  the  consignor  may,  how- 
ever, make  a  valid  contract  limiting  the  liability  of  the 
carrier.  While  the  ordinary  measure  of  damages  for 
breach  of  a  carrier's  obligation  to  deliver  freight  is  the 
value  of  the  goods  at  the  time  and  place  of  delivery,  the 
liability  of  the  carrier  may  be  limited  by  a  special  contract 
signed  by  the  consignor,  making  the  invoice  price  at  the 
point  of  shipment  the  measure  of  damages,  or  otherwise 
limiting  the  carrier's  liability.  A  carrier  of  freight  is  also 
liable  to  pay  damages  for  delay  in  delivering  the  freight. 
The  damages  allowed  will  be  the  depreciation  in  the  in- 
trinsic value  of  the  freight  during  the  delay,  and  also  the 
depreciation  in  the  market  value  of  the  goods. 
Civil  Code,  Sections  3315,  3316,  3317. 

Section  397.— DAMAGES  FOR  BREACH  OF  OTHER 
CONTRACTS. — The  damages  allowed  for  the  breach  of 
any  contract  must  be  the  proximate  result  of  the  breach. 
The  damages  must  not  be  speculative  and  uncertain,  and 
they  must  be  capable  of  being  traced  to  the  act  complained 
of.  For  the  breach  of  any  contract,  the  injured  party  is 
entitled  to  enough  damages  to  make  him  whole  again,  pro- 
vided the  damages  claimed  are  the  proximate  or  natural 
results  of  the  breach.  The  damages  allowed  must  be  such 
as  are  proximately  caused  by  the  breach,  or  such  as  in  the 
ordinary  course  of  things  would  be  likely  to  result  from  it. 

Partnership 

'  Section  398.— WHAT  CONSTITUTES  A  PARTNER- 
SHIP.— The  Civil  Code  of  California  defines  a  partnership 
as  being  "the  association  of  two  or  more  persons  for  the  pur- 
pose of  carrying  on  business  together,  and  dividing  its 
profits  between  them."     This  definition  of  a  partnership 


312  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

is  not  as  comprehensive  as  many  that  have  been  adopted 
by  eminent  writers  on  legal  subjects.  Judge  Story  de- 
fines a  partnership  thus :  ''Partnership,  often  called  co- 
partnership, is  usually  defined  to  be  a  voluntary  contract 
between  two  or  more  competent  persons  to  place  their 
money,  effects,  labor,  and  skill,  or  some  or  all  of  them,  in 
lawful  commerce  or  business,  with  the  understanding  that 
there  shall  be  a  communion  of  the  profits  between  them." 
But  whether  we  consider  the  definition  of  Judge  Story,  or 
the  definition  to  be  found  in  the  Civil  Code  of  California, 
first  quoted,  it  is  very  evident  that  in  all  one  essential  thing 
is  omitted.  They  state  that  there  is  to  be  a  division  of  the 
profits,  but  say  nothing  about  sharing  the  losses.  A  better 
definition  of  partnership,  and  one  more  in  accord  with  the 
established  conditions  of  modern  business,  might  be  sug- 
gested thus :  Partnership  is  the  voluntary  association  of 
two  or  more  persons  for  the  purpose  of  carrying  on  business 
together,  and  dividing  its  profits  and  sharing  its  losses  be- 
tween them.  For  there  may  be,  and  often  is,  a  sharing  of 
the  profits  of  a  business  venture,  when  there  is  no  partner- 
ship. Agents,  or  brokers,  or  commission  merchants  may 
be  offered  and  accept  a  share  of  the  profits,  as  an  induce- 
ment to  greater  effort  on  their  part,  but  this  will  not  con- 
stitute them  partners  with  their  principals.  There  must  be 
a  community  of  interest  in  both  the  profits  and  the  losses, 
to   constitute   a  valid   partnership. 

Section    399.— FORMATION    OF    PARTNERSHIP.— 

A  partnership  can  be  formed  only  by  the  consent  of  all 
the  parties.  As  the  voluntary  consent  of  all  the  members 
is  necessary  in  the  formation  of  a  partnership,  it  is  the 
law  that  no  new  partner  can  be  admitted  into  a  partnership 
without  the  consent  of  every  member.  If  one  partner  sells 
his  interest  in  the  partnership  propert}'-,  this  will  not  make 
the  purchaser  a  partner,  without  the  consent  of  the  partner 
who  stays  in  the  business.  Neither  member  of  a  partner- 
ship can  force  a  new  member  into  the  firm. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  313 

Section      400.— PARTNERSHIP       PROPERTY.— The 

property  of  a  partnership  consists  of  all  that  is  contributed 
to  the  common  stock  at  the  formation  of  the  partnership, 
and  all  that  is  subsequently  acquired  by  the  partnership. 
But  while  every  partnership  presupposes  that  there  must 
be  something  brought  into  the  common  stock  or  fund  by 
each  member,  it  is  not  necessary  that  each  should  con- 
tribute or  contract  to  contribute  money,  goods,  effects,  or 
other  property,  towards  the  common  stock;  for  one  may 
contribute  labor,  or  skill,  and  another  may  contribute 
property,  and  another  may  contribute  money,  according 
as  they  shall  agree.  Sometimes  it  happens  that  each  part- 
ner contributes  only  skill,  or  labor,  or  services,  for  the  com- 
mon benefit.  But  all  must  contribute  something,  and  thus 
join  together  either  money,  or  goods,  or  other  property, 
or  labor,  or  skill.  Whether  the  partners  in  the  first  place 
contribute  money,  or  real  or  personal  property,  or  only 
their  personal  labor  and  services,  if  they  afterwards  acquire 
any  property  in  the  partnership  business  and  with  part- 
nership funds,  it  belongs  to  the  firm,  and  not  to  the  mem-, 
hers  individually. 

Civil   Code,   Section   2401. 

Section  401.— PARTNER'S  INTEREST  IN  PART- 
NERSHIP PROPERTY.— The  interest  of  each  member 
of  a  partnership  extends  to  every  portion  of  its  property. 
One  partner  has  no  interest  distinct  from  the  other  in  the 
assets  of  the  firm.  One  partner  has  no  control  of  the  part- 
nership assets  which  the  other  cannot  have.  The  property 
of  the  partnership  is  common,  held  by  a 'community  of 
interest;  and  it  is  always  first  liable  for  the  partnership 
debts,  before  any  of  it  can  be  applied  to  the  individual  use 
or  individual  debts  of  either  partner. 

Section  402.— POSSESSION  OF  PARTNERSHIP 
PROPERTY. — Partners  are  equally  entitled  to  possession 
of  the  partnership  property.       Partners  are  joint  owners 


314   .  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

and  possessors  of  all  the  capital  stock,  funds,  and  effects 
belonging  to  the  partnership,  as  well  as  of  those  which  be- 
longed to  it  at  the  time  of  its  first  formation  and  establish- 
ment; so  that,  whether  its  stock,  funds,  or  effects  be  the 
product  of  their  labors  or  manufactures,  or  be  received  or 
acquired  by  sale,  barter,  or  otherwise,  in  the  course  of  their 
trade  or  business,  there  is  an  entire  community  of  right  and 
interest  between  them. 

Neither  partner  has  any  right  of  possession  of  the  part- 
nership property  to  the  exclusion  of  the  other.  One  part- 
ner is  as  much  entitled  to  the  possession  as  the  other.  Nor 
would  it  make  any  difference  if  the  partnership  was  dis- 
solved ;  for  in  that  case  both  partners  would  be  entitled 
equally  to  the  possession  of  the  partnership  assets,  until 
the  partnership  affairs  could  be  finally  settled  up. 

Section    403.— PARTNER'S     SHARE    IN     PROFITS 

AND  LOSSES. — In  the  absence  of  any  agreement  on  the 
subject,  the  shares  of  partners  in  the  profits  or  losses  of  the 
•business  are  equal,  and  the  share  of  each  in  the  partnership 
property  is  the  value  of  his  original  contribution,  increased 
or  diminished  by  his  share  of  profit  or  loss.  Where  there 
is  no  agreement  between  the  partners,  they  are  to  contribute 
equally  to  every  loss,  whether  the  loss  be  unpaid  advances, 
or  the  loss  of  the  original  capital  brought  in ;  and  this  is 
the  rule,  whether  the  partners  contributed  to  the  capital 
in  equal  shares  or  not.  It  is  essential  to  the  interest  of 
a  valid  partnership  that  there  should  be  a  sharing  of  profits 
and  a  sharing  of  losses.  Profits  and  losses  will  be  shared 
equally,  if  there  is  no  agreement  to  the  contrary,  no  mat- 
ter what  proportion  of  the  firm  assets  was  originally  con- 
tributed by  each.  But  the  partners  may  agree  between  them- 
selves that  one  shall  have  a  larger  share  of  the  profits  than 
the  other,  or  that  one,  if  losses  occur,  shall  bear  a  larger 
share  of  the  loss  than  the  other,  and  this  agreement  will  be 
valid  and  binding.  An  agreement  to  divide  the  profits 
of  a  business  implies  an   agreement  for  a  corresponding 


BUSINESS  CONTRACTS  AND  LEGAli  OBLIGATIONS.  315 

division  of  its  losses,  unless  it  is  otherwise  expressly 
stipulated.  But  the  law  recognizes  the  fact  that  the  in- 
equality of  skill,  of  labor,  or  of  experience,  which  the 
partners  may  bring  into  the  particular  business,  may  not 
only  justify  but  positively  require  an  inequality  of  compen- 
sation, and  of  exemption  from  loss,  as  a  matter  of  justice 
and  equity  between  the  parties.  And  the  law  has,  there- 
fore, wisely  not  prohibited  it;  but  has  left  it  to  the  parties 
to  exercise  their  own  discretion  in  these  matters,  taking 
care  that  no  fraud,  imposition,  or  undue  advantage  is  taken 
by  one  of  the  other.  And  wherever  stipulations  are  fairly 
•made  between  partners,  for  unequal  sharing  of  profits  and 
losses,  the  law  will  uphold  and  enforce  them  as  valid  agree- 
ments. 

Civil  Code,  Sections  2403,  2404. 

Section  404.— APPLICATION  OF  PARTNERSHIP 
PROPERTY  TO  PAYMENT  OF  DEBTS.— Each  mem- 
ber of  a  partnership  may  require  its  property  to  be  applied 
to  the  discharge  of  its  debts,  and  has  a  lien  upon  the  shares 
of  the  other  partners  for  this  purpose,  and  for  the  payment 
of  the  general  balance,  if  any,  due  to  him.  The  debts  of  a 
partnership  must  be  paid  out  of  the  partnership  property, 
before  any  portion  of  it  can  be  applied  to  the  individual 
debts  of  the  partners.  The  interest  of  a  partner  may  be 
levied  upon  for  the  payment  of  his  debts,  but  when  this  is 
done,  the  creditors  of  the  firm  must  be  first  satisfied,  be- 
fore the  property  can  be  taken  to  pay  anybody  else. 

Section  405.— WHAT  IS  PARTNERSHIP  PROPERTY. 

— All  property,  whether  real  or  personal,  acquired  with 
partnership  funds,  is  presumed  to  be  partnership  property. 
There  is  little  difficulty  in  determining  the  partnership 
character  of  personal  or  movable  property,  as  a  stock  of 
goods,  for  instance;  but  there  is  sometimes  difficulty  in 
aetermining  the  true  character  of  real  estate.  The  deed 
to  real  estate  must  necessarily  be  made  to  and  be  recorded 


316  BUSINESS  LAWS  FOR  BUSINESS  MEN.  * 

in  the  individual  names  of  one  or  more  members  of  the 
firm.  Cases  often  occur  where  the  partner  in  whose  name 
real  property  stands  of  record  denies  that  it  is  partnership 
property  and  claims  it  as  his  own.  Whenever  this  occurs, 
it  is  important  to  know  the  law  governing  the  matter.  It 
is  the  general  rule  in  law  that  real  or  immovable  property 
is  deemed  to  belong  to  the  persons  in  whose  name  the 
deed  stands.  But,  as  to  partners,  however  the  recorded 
title  may  stand,  or  in  whose  name  it  may  be,  real  estate 
bought  with  partnership  funds  for  partnership  purposes 
will  always  be  considered  partnership  property. 

Section  406.— MUTUAL  OBLIGATIONS  OF  PART- 
NERS.— The  relations  of  partners  are  necessarily  confi- 
dential, and  they  are  always  bound  to  deal  in  good  faith 
one  with  another.  In  all  proceedings  connected  with  the 
formation,  conduct,  dissolution,  and  liquidation  of  a  part- 
nership, every  partner  is  bound  to  act  in  the  highest  good 
faith  toward  his  copartners.  He  must  not  obtain  any  ad- 
vantage over  them  in  the  partnership  affairs,  by  the  slight- 
est misrepresentation,  concealment,  threat,  or  pressure  of 
any  kind.  The  contract  of  partnership  has  its  foundation 
in  the  mutual  respect,  confidence,  and  belief  in  the  entire 
integrity  of  each  partner,  and  his  sincere  devotion  to  the 
business  and  true  interests  of  the  partnership ;  and  good 
faith,  reasonable  skill  and  diligence,  and  the  exercise  of 
sound  judgment  and  discretion,  are  necessarily  and  natural- 
ly expected  of  each  party  to  the  partnership.  Judge  Story 
in  his  book  on  partnership  says,  on  this  subject:  "Good 
faith  not  only  requires  that  every  partner  should  not  make 
any  false  representations  to  his  partners,  but  also  that  he 
should  abstain  from  all  concealments,  which  may  be  in- 
jurious to  the  partnership  business.  If,  therefore,  any 
partner  is  guilty  of  any  such  concealment,  and  derives  a 
private  benefit  therefrom,  he  will  be  compelled  to  account 
therefor  to  the  partnership.  Upon  the  like  ground,  where 
one  partner,  who  exclusively  superintended  the  accounts 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  317 

of  the  concern,  had  agreed  to  purchase  the  share  of  his 
copartners  in  the  business  for  a  sum,  which  he  knew,  from 
the  accounts  in  his  possession,  but  which  he  concealed  from 
them,  to  be  for  an  inadequate  consideration,  the  bargain 
was  set  aside  in  equity,  as  a  constructive  fraud ;  for  he 
could  not  in  fairness  deal  with  the  other  partners  for  their 
share  of  the  profits  of  the  concern  without  putting  them 
in  possession  of  all  the  information,  which  he  himself  had, 
with  respect  to  the  state  of  the  accounts  and  the  value  of 
the  concern."  As  illustrations  of  the  good  faith  which 
must  be  observed  by  one  partner  to  another,  so  clearly 
explained  by  Judge  Story,  it  is  a  violation  of  good  faith 
for  any  partner,  in  conducting  the  partnership  business,  to 
contract  secretly  with  third  persons  for  any  private  and 
selfish  advantage  and  benefit  to  himself,  exclusive  of  the 
partnership ;  for  all  the  partnership  property  and  partner- 
ship contracts  should  be  managed  for  the  equal  benefit  of 
all  the  partners.  If,  therefore,  any  one  partner  should  con- 
tract secretly  in  a  matter  of  partnership  concern  for  any 
private  advantage  or  benefit  to  himself,  to  the  disadvantage 
or  in  fraud  of  his  partners,  he  will  be  compelled  to  divide 
his  gains  with  them.  So,  if  a  purchase  is  made  on  the  part- 
nership account  by  one  partner,  who  secretly  stipulates  for 
and  receives  any  reward  or  allowance  from  the  seller,  for 
his  own  private  profit,  he  will  be  compelled  to  share  with 
his  partners.  So,  where  one  partner  secretly  obtains  the 
renewal  of  a  partnership  lease  in  his  own  name,  he  will 
be  held  a  trustee  for  the  firm  in  the  renewed  lease.  The 
obligations  of  partners,  however,  whatever  they  may  be, 
do  not  prevent  either  member  of  the  firm  from  engaging 
in  other  business  on  his  own  account,  but  it  must  not  be 
such  business  as  interferes  with  or  is  in  any  way  injurious 
to  the  partnership. 

Civil  Code,  Section  2411. 

Section   407.— LIABILITY  OF  PARTNERS  TO   AC- 
COUNT.— Each   member  of  a   partnership   must   account 


318  BUSINESS  LAWS   FOR  BUSINESS   MEN. 

to  it,  for  everything  that  he  receives  on  account  of  the 
firm.  While  he  must  render  an  account  of  everything  he 
receives,  he  is  at  the  same  time  entitled  to  reimbursement 
from  the  firm  for  everything  that  he  has  properly  expended 
for  its  benefit,  and  he  is  entitled  to  be  reimbursed  for  all 
losses  and  risks  which  he  has  necessarily  incurred  on  behalf 
of  the  firm. 

Civil  Code,  Section  2412. 

Section  408.— COMPENSATION  FOR  SERVICES  TO 
FIRM. — A  partner  is  not  entitled  to  any  compensation  for 
services  rendered  by  him  to  the  partnership.  A  special 
agreement  may  be  made  among  the  partners  that  one  shall 
be  paid  an  extra  compensation  above  his  share  of  the 
profits,  for  his  services,  but  the  obligation  rests  entirely 
upon  the  agreement  of  the  parties.  Where  there  is  no 
agreement  of  the  kind,  the  law  will  not  allow  one  partner 
to  take  from  the  partnership  assets  any  compensation  for 
his  services.  The  reason  is,  that  each  partner  is  under  obli- 
gations to  devote  his  skill  and  eflForts  to  the  promotion  of 
the  common  benefits  of  the  firm. 
Civil  Code,  Section  2413. 

Section  409.— RENUNCIATION  OF  PARTNERSHIP. 

— The  law  of  California  provides,  that  a  partner  may  ex- 
onerate himself  from  all  future  liability  to  a  third  person, 
on  account  of  the  partnership,  by  renouncing,  in  good  faith, 
all  participation  in  its  future  profits.  To  do  so,  he  must 
give  notice  to  third  persons,  and  to  his  partner,  that  he 
renounces  all  participation  in  the  future  profits  of  the  firm, 
and  that,  so  far  as  may  be  in  his  power,  he  dissolves  the 
partnership,  and  does  not  intend  to  be  liable  on  its  account 
for  the  future.  After  a  partner  has  given  notice  of  his 
renunciation  of  the  partnership,  he  cannot  claim  any  of  its 
subsequent  profits,  and  his  partners  may  proceed  to  dis- 
solve the  partnership.  As  to  the  partners,  this  renuncia- 
tion ends  the  partnership.     But  as  to  all  other  persons  the 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  319 

liabilities  of  the  retiring  partner  continue  until  proper  no- 
tice is  given.  General  notice  is  sufficient  as  to  the  public 
in  general ;  but  as  to  such  persons  as  have  had  dealings 
with  the  firm,  actual  notice  must  be  given.  A  partner  re- 
tiring from  the  partnership,  in  order  to  relieve  himself  from 
further  liabilities  of  the  firm,  must  give  actual  notice  of 
such  retirement,  and  of  the  dissolution  of  the  partnership, 
to  such  persons  as  have  been  accustomed  to  deal  with  it. 
It  is  not  essential  that  such  notice  shall  be  given  in  any 
particular  form;  it  may  be  verbal,  or  in  writing;  it  may 
be  expressed,  or  it  may  be  implied  from  circumstances.  It 
must  appear,  however,  with  reasonable  certainty,  that  such 
persons  in  some  way  received  actual  notice.  This  is  so, 
because  established  business  relations  might  lead  such 
parties  more  readily  to  give  the  firm  credit.  Moreover, 
they  are  known  to  the  firm,  and  may  be  readily,  in  some 
proper  way,  notified.  Such  notice  given  in  a  regular  news- 
paper of  general  circulation,  published  in  the  city,  town, 
or  county  where  the  partnership  business  is  carried  on,  is 
the  usual  method  of  giving  information ;  and  this  will  be 
sufficient,  when  continued  for  a  reasonable  length  of  time, — • 
this  depending  somewhat  upon  the  nature,  extent,  and  place 
of  the  business. 

Civil  Code,  Sections  2417,  2418. 

Section  410.— POWER  OF  MAJORITY  OF  PART- 
NERS.— Where  the  partnership  consists  of  more  than  two 
members,  the  decision  of  the  majority  binds  the  firm  in  the 
conduct  of  its  business.  The  minority  must  be  consulted 
in  good  faith,  and  when  this  is  done  the  majority  of  the 
members  have  a  right  to  control  the  manner  of  conducting 
the  business.  The  majority  can  govern  only  in  the  due 
course  of  business,  and  cannot  change  the  general  character 
of  the  business  against  the  will  of  one  dissenting  partner. 
Civil  Code,  Section  2428. 

Section  411.— AUTHORITY  OF  INDIVIDUAL  PART- 
NER.— Every  general  partner  is  agent  for  the  partnership 


320  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

in  the  transaction  of  its  business,  and  has  authority  to 
do  whatever  is  necessary  to  carry  on  such  business  in  the 
ordinary  manner,  and  for  this  purpose  may  bind  his  co- 
partners by  an  agreement  in  writing.  Each  partner  is  the 
general  agent  of  his  copartners  as  to  firm  business,  and  the 
members  of  the  firm  are  considered  as  sanctioning  his 
contracts.  Whenever  there  are  written  articles,  or  par- 
ticular stipulations  between  the  partners,  these  will  regu- 
late their  respective  power  and  authority  as  between  them- 
selves, although  not,  if  unknown,  in  their  dealings  with 
third  persons.  But  independently  of  any  such  articles  or 
stipulations,  each  partner  possesses  an  equal  and  general 
power  and  authority  in  behalf  of  the  firm,  to  transfer, 
pledge,  exchange,  or  otherwise  dispose  of  the  partnership 
property  and  effects,  for  any  and  all  purposes  within  the 
scope  and  objects  of  the  partnership,  and  in  the  course  of  its 
trade  and  business.  One  partner  by  virtue  of  that  relation 
is  constituted  a  general  agent  for  another  as  to  all  matters 
within  the  scope  of  the  partnership  dealings,  and  has  com- 
municated to  him,  by  virtue  of  that  relation,  all  authority 
necessary  for  carrying  on  the  partnership,  and  all  such 
authority  as  is  usually  exercised  by  partners  in  the  busi- 
ness in  which  they  are  engaged.  Any  restrictions  which, 
by  agreement  amongst  the  partners,  are  attempted  to  be 
imposed  upon  the  authority  which  one  possesses  as  a  gen- 
eral agent  for  the  other,  are  operative  only  between  the 
partners  themselves,  and  do  not  limit  the  authority  as  to 
third  persons,  who  acquire  rights  by  their  exercise,  unless 
they  know  that  such  restrictions  have  been  made.  Each 
partner  may  enter  into  any  contracts  or  engagements  on 
behalf  of  the  firm  in  the  ordinary  trade  and  business;  as, 
for  example,  by  buying,  or  selling,  or  pledging  goods,  or  by 
paying,  or  receiving,  or  borrowing  moneys,  or  by  drawing, 
or  negotiating,  or  indorsing,  or  accepting  bills  of  exchange, 
and  promissory  notes,  •  and  checks,  and  other  negotiable 
securities,  or  by  procuring  insurance  for  the  firm,  or  by 
doing   any   acts    which    are   appropriate   to   such    trade   or 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  321 

business,  according  to  the  common  course  and  usages  of  the 
business.  So,  each  partner  may  consign  goods  to  an  agent 
or  factor  for  sale  on  account  of  the  firm,  and  give  instruc- 
tions and  orders  relating  to  the  sale.  All  such  contracts  and 
engagements,  acts  and  things,  he  has  authority  to  make  and 
do  in  the  name  of  the  firm ;  and  in  order  to  bind  the  firm, 
they  must  ordinarily  be  made  and  done  in  the  name  of  the 
firm,  otherwise  they  will  bind  the  individual  partner  only. 
Civil  Code,  Section  2429. 

Section    412.— WHAT    PARTNER    CANNOT    DO.— 

There  are  some  things  which  the  law  of  California  specially 
declares  one  partner  alone  has  no  authority  to  do.  (1)  He 
cannot  make  an  assignment  of  any  portion  of  the  partner- 
ship property  to  a  creditor,  or  to  a  third  person  in  trust  for 
creditors.  (2)  He  cannot  dispose  of  the  good-will  of  the 
business.  (3)  He  cannot  dispose  of  the  whole  of  the  part- 
nership property  at  once,  unless  it  consists  entirely  of  mer- 
chandise. (4)  He  has  no  authority  to  do  any  act  which 
would  make  it  impossible  to  carry  on  the  ordinary  business 
of  the  partnership.  (5)  One  partner  has  no  authority  to 
confess  a  judgment  against  the  partnership.  (6)  One  part- 
ner cannot  submit  a  partnership  claim  to  arbitration. 
Civil  Code,  Section  2430. 

Section  413.— PARTNER  ENGAGING  IN  OTHER 
BUSINESS. — A  general  partner,  who  agrees  to  give  his 
personal  attention  to  the  business  of  the  partnership,  may 
not  engage  in  any  business  which  gives  him  an  interest 
adverse  to  that  of  the  partnership,  or  which  prevents  him 
from  giving  to  such  business  all  the  attention  which  would 
be  advantageous  to  it.  A  partner  may  engage  in  any  sep- 
arate business  which  does  not  create  an  interest  adverse 
to  the  partnership,  and  which  does  not  take  too  much  of 
his  time  from  the  firm's  business. 

Civil  Code,  Sections  2436,  2437. 


322  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  414.— GENERAL  LIABILITY  OF  PART- 
NER.— Every  general  partner  is  liable  to  third  persons 
for  all  the  obligations  of  the  partnership,  jointly  with  his 
copartners. 

Civil  Code,  Section  2442. 

Section  415.— LIABILITY  OF  ONE  WHO  PERMITS 
HIMSELF  TO  BE  HELD  OUT  AS  A  PARTNER.— Any 

one  permitting  himself  to  be  represented  as  a  partner  is 
liable  as  such  to  third  persons  to  whom  such  representation 
is  communicated,  and  who,  on  the  faith  of  it,  give  credit 
to  the  partnership.  Thus,  one  who  is  not  actually  a  part- 
ner may  make  himself  liable  for  the  partnership  debts,  if 
he  knows  that  he  is  being  represented  by  the  firm  as  a 
partner  in  it,  and  allows  such  representation  to  be  made, 
and  it  is  acted  upon  in  good  faith. 
Civil  Code,  Section  2444. 

Section  416.— DOING  BUSINESS  UNDER  FICTI- 
TIOUS NAME. — The  law  provides  that  every  partnership 
transacting  business  in  this  State  under  a  fictitious  name, 
or  designation  not  showing  the  names  of  the  persons  inter- 
ested as  partners  in  such  business,  must  file  with  the  clerk 
of  the  county  in  which  its  principal  place  of  business  is 
situated,  a  certificate  stating  the  names  in  full  of  all  the 
members  of  such  partnership  and  their  places  of  residence, 
and  must  publish  the  same  once  a  week  for  four  successive 
weeks  in  a  newspaper  published  in  the  county,  if  there  be 
one,  and  if  there  be  none  in  such  county,  then  in  a  news- 
paper published  in  an  adjoining  county.  There  is  one  ex- 
ception, in  the  case  where  a  commercial  or  banking  partner- 
ship, established  and  doing  business  in  a  foreign  country, 
seeks  to  do  business  in  this  State ;  a  foreign  firm  may  use 
the  same  partnership  name  it  uses  at  home,  although  ficti- 
tious, and  although  it  does  not  show  the  names  of  the  per- 
sons interested  as  partners.  The  certificate  must  be  signed 
by  the  partners,  and  acknowledged  by  them,  and  must  be 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  323 

published  within  one  month  after  the  formation  or  com- 
mencement of  the  partnership.  A  new  certificate  must  be 
made  and  published  whenever  there  is  a  change  in  the 
membership  of  the  partnership. 

Civil  Code,  Sections  2466,  2467,  2468,  2469. 

Section  417.— SPECIAL  PARTNERSHIPS.— The  law 
of  France  has  long  provided  for  a  kind  of  partnership  known 
as  "special  partnership,"  which  differs  from  a  general  part- 
nership in  several  important  particulars,  and  some  of  the 
States  in  this  country  have  copied  the  French  law  and  made 
it  a  part  of  their  statutes.  California  is  one  of  the  States 
which  have  adopted  the  law  on  special  partnerships,  and 
fully  recognizes  by  statute  the  existence  and  rights  and 
liabilities  of  special  partners.  A  special  partnership  may 
be  formed  in  this  State  by  two  or  more  persons,  for  the 
transaction  of  any  business  except  banking  or  insurance. 
A  special  partnership  may  consist  of  one  or  more  general 
partners  and  one  or  more  special  partners. 

Section  418.— CERTIFIED  STATEMENT  OF  SPE- 
CIAL PARTNERSHIP.— When  a  special  partnership  is 
formed  the  partners  must  sign  a  certificate  stating  the 
name  under  which  the  partnership  is  to  be  conducted ;  the 
general  nature  of  the  business  intended  to  be  transacted ; 
the  names  of  all  the  partners,  and  their  residences,  speci- 
fying which  are  general  and  which  are  special  partners ; 
the  amount  of  capital  which  each  special  partner  has  con- 
tributed to  the  common  stock ;  and  the  time  at  which  the 
partnership  will  begin  and  end.  This  certificate  must  be 
acknowledged  and  recorded  in  all  the  counties  in  which 
the  firm  has  places  of  business.  An  affidavit  of  each  of 
the  partners  must  be  filed  for  record  with  the  certificate, 
stating  that  each  of  the  special  partners  has  paid  in  the 
sum  named  in  the  certificate.  The  certificate,  or  a  state- 
ment of  its  substance,  must  also  be  published  in  a  news- 
paper in  the  county  where  the  original  certificate  is  filed; 


324  BUSINESS   LAWS  FOR  BUSINESS  MEN. 

and  if  there  is  no  newspaper  in  that  county,  thgi  the  pub- 
lication must  be  made  in  the  nearest  newspaper ;  and  this 
publication  must  be  made  once  a  week  for  four  successive 
weeks,  beginning  within  one  week  from  the  time  of  filing 
the  certificate  for  record. 

Civil  Code,  Sections  2479,  2480,  2481,  2483,  2484. 

Section  419.— SPECIAL  PARTNERSHIP— LIABIL- 
ITY OF  THE  PARTNERS.— The  general  partners  in  a 
special  partnership  are  liable  to  the  same  extent  as  partners 
in  a  strictly  general  partnership.  They  are  each  liable  for 
all  the  debts  of  the  firm.  But  a  special  partner  is  only  liable 
for  the  debts  of  the  firm  to  the  extent  of  the  capital  he 
has  put  into  the  business.  A  special  partner  may  do  things 
which  will  make  him  liable  as  a  general  partner ;  for  if  it 
appears  that  he  has  wilfully  made  a  false  statement  in  the 
certificate  of  partnership,  or  if  he  wilfully  interferes  with 
the  business  of  the  firm,  or  if  he  represents  himself  as  a 
general  partner  in  the  firm,  he  will  be  liable  as  a  general 
partner;  that  is,  he  will  be  liable  for  all  debts  of  the  firm. 
Civil  Code,  Sections  2500,  2501. 

Section  420.— RIGHTS  OF  SPECIAL  PARTNERS.— 

Only  the  general  partners  have  authority  to  transact  the 
business  of  a  special  partnership.  The  special  partner, 
while  he  has  no  right  to  engage  in  or  interfere  with  the 
authority  of  the  general  partners  to  conduct  the  business 
of  the  firm,  yet  may  at  all  times  investigate  the  partnership 
affairs,  and  advise  his  partners,  or  their  agents,  as  to  their 
management  of  the  business.  A  special  partner  may  lend 
money  to  the  partnership,  or  advance  money  for  it,  and 
take  from  it  security,  and  as  to  such  loans  or  advances  he 
will  have  the  same  rights  as  any  other  creditor ;  but  in  case 
of  the  insolvency  of  the  firm,  all  other  claims  which  he 
may  have  against  it  will  be  postponed  until  all  other  credit- 
ors are  satisfied.  In  all  matters  relating  to  a  special  part- 
nership, the  general  partners  may  sue  and  be  sued  alone, 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  325 

as  if  there  were  no  special  partners.  No  special  partner, 
under  any  pretense,  has  any  right  to  withdraw  any  of  the 
capital  invested  by  him  in  the  partnership,  during  its  con- 
tinuance. 

Civil  Code,  Sections  2489,  2490,  2491,  2492,  2493. 

Section  421.— INTEREST  AND  PROFITS  OF  SPE- 
CIAL PARTNER. — A  special  partner  may  receive  such 
interest  on  his  money  invested,  and  such  proportion  of  the 
profits,  as  may  be  agreed  upon  between  him  and  the  general 
partners. 

Section  422.— MINING  PARTNERSHIPS.— A  mining 
partnership  is  different  in  its  nature  and  creation  from  the 
ordinary  partnerships  known  to  commercial  life.  An  ex- 
press agreement  to  become  partners,  or  to  share  the  profits 
and  losses,  is  not  necessary  in  the  creation  or  existence  of 
a  mining  partnership.  The  law  of  California  provides,  that 
a  mining  partnership  arises  from  the  ownership  of  shares 
or  interests  in  the  mine,  and  the  working  of  the  mine  for 
the  purpose  of  extracting  the  mineral  from  it.  The  miners 
must  own  or  have  acquired  the  mine,  and  be  actually  en- 
gaged in  working  it ;  and  when  they  do  so,  the  law  looks 
upon  their  relations  as  those  of  a  partnership,  without  the 
necessity  of  a  written  or  oral  agreement  to  share  profits 
and  losses.  It  is  not  necessary  that  the  miners  hold  the 
legal  title  to  the  mine  in  order  to  become  partners.  If 
they  acquire  a  mining  claim,  though  it  is  not  patented, 
and  may  never  be,  still  they  are  mining  partners  if  they 
actually  engage  in  working  the  mine  for  the  purpose  of 
extracting  the  mineral  from  it.  The  mining  partners  need 
not  all  have  equal  interests  in  the  profits.  If  a  number  of 
miners  acquire  a  claim  and  work  it,  on  shares,  whether 
the  shares  be  equal  or  not,  it  is  a  mining  partnership.  The 
essential  difference  between  the  ordinary  partnerships  and 
a  mining  partnership  is,  that  in  a  mining  partnership 
there  is  no  choice  of  partners.     One  member  of  a  mining 


326  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

partnership  may  sell  his  interest  or  share  in  the  mine,  and 
the  partnership  is  not  dissolved,  and  as  to  those  who  con- 
tinue to  work  the  mine,  the  partnership  continues  to  exist ; 
while  in  a  general  partnership,  the  sale  by  one  partner  dis- 
solves the  partnership,  because  none  of  the  general  partners 
can  force  a  new  member  into  the  firm. 

Civil  Code,  Sections  2511,  2512. 

Section  423.— PROFITS  AND  LOSSES  IN  MINING 
PARTNERSHIP. — A  mining  partner  shares  in  the  profits 
and  losses  in  proportion  to  the  interest  or  share  which  he 
owns  in  the  whole  mine,  and  the  proportion  which  his  in- 
terest bears  to  the  whole  partnership  capital  or  whole  num- 
ber of  shares. 

Section  424.— LIABILITY  OF  MINING  PARTNERS. 

— Each  mining  partner  is,  as  to  third  parties,  liable  for  the 
entire  debts  of  the  partnership.  If  one  mining  partner  pays 
the  debts,  or  advances  money  for  the  use  of  the  partner- 
ship, he  has  a  lien  on  the  property  of  the  partnership  for 
his  money.  And  the  law  declares  that  this  lien  shall  exist, 
even  though  there  is  an  agreement  among  the  partners  that 
it  must  not. 

Civil    Code,    Section    2514. 

Section    425.— MINING     GROUND     PARTNERSHIP 

PROPERTY. — The  mining  ground  owned  and  worked  by 
partners  in  mining,  whether  purchased  with  partnership 
funds  or  not,  is  partnership  property.  But  a  mere  agree- 
ment to  work  a  mine  in  the  future,  upon  the  happening  of 
a  contingency,  does  not  make  it  partnership  property. 
Justice  Temple,  of  the  Supreme  Court  of  California,  in 
the  mining  case  of  Dorsey  vs.  Newcomer,  speaking  of  the 
partnership  property  of  miners,  said :  "It  is  not  always  easy 
to  determine  what  constitutes  the  partnership  property  of  a 
mining  partnership.  The  statute  provides  that  the  mining 
ground  owned  and  worked  by  partners  in  mining,  whether 


BUSINESS   CONTRACTS   AND   LEGAL.   OBLIGATIONS.  327 

purchased  by  the  partnership  or  not,  is  partnership  property. 
•It  does  not  follow  that  property  other  than  the  ground 
owned  and  worked  may  not  also  be  partnership  property. 
No  doubt,  other  property  acquired  by  the  partnership  for 
the  purpose  of  aiding  in  working  the  mining  claim,  such 
as  a  mill  or  mill  site,  would  also  be  property  of  the  partner- 
ship. So,  other  mining  ground  acquired  for  the  purpose  of 
working  with  the  mining  ground  already  being  worked,  and 
so  situated  that  it  can  be  worked  with  the  original  claim  as 
parts  of  one  mine,  would  be  partnership  property.  And, 
generally,  property  acquired  by  the  partnership  by  the  use 
of  partnership  funds,  as  distinguished  from  the  individuals 
constituting  the  firm,  may  be  so  regarded.  But  the  statute 
evidently  distinguishes  between  ground  owned  or  acquired 
for  the  purpose  of  working,  and  ground  actually  worked. 
It  is  only  the  last  that  in  general  can  be  regarded  as  part- 
nership property,  when  not  acquired  by  the  partnership,  or 
by  the  use  of  its  funds."  (Decided  by  the  Supreme  Court 
of  California,  in  the  case  of  Thomas  B.  Dorsey  vs.  J.  T. 
Newcomer,  which  decision  is  printed  in  Volume  121  of  the 
California  Reports,  page  213.) 
Civil  Code,  Section  2515. 

Section  426.— NEW  MEMBER  OF  MINING  PART- 
NERSHIP.— One  of  the  partners  in  a  mining  partnership 
may  sell  his  interest  in  the  mine  and  business  without  dis- 
solving the  partnership.  And  the  purchaser,  from  the  date 
of  his  purchase,  becomes  a  member  of  the  partnership.  But 
the  purchaser  of  an  interest  in  the  mining  ground  takes  it 
subject  to  the  liens  existing  in  favor  of  the  partners,  for 
debts  due  the  creditors,  or  advances  made  for  the  benefit 
of  the  partnership,  of  which  he  has  notice;  and  the  pur- 
chaser of  the  interest  of  a  partner  in  a  mine  when  the  part- 
ners are  engaged  in  working  it,  is  charged  by  the  law  with 
notice  of  all  liens  resulting  from  the  relation  of  the  part- 
ners to  each  other  and  to  the  creditors  of  the  partnership. 
Civil  Code,  Sections  2516,  2517,  2518. 


328  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  427.— CONTRACT  IN  WRITING.— No  member 
of  a  mining  partnership,  or  any  agent  or  manager  of  the 
firm,  can  bind  the  partnership  by  a  contract  in  writing,  ex- 
cept by  express  authority  from  all  the  members  of  the  firm. 
He  cannot  bind  the  partnership  by  making  a  promissory 
note,  or  by  any  agreement  in  writing  affecting  the  partner- 
ship property. 

Civil  Code,   Section  2519. 

Section  428.— OWNERS  OF  MAJORITY  OF  SHARES 
GOVERN  CONDUCT  OF  MINE.— The  decision  of  the 
partners  owning  a  majority  of  the  shares  or  interests  in  a 
mining  partnership  will  always  control  the  conduct  of  its 
business.  As  the  mining  property  can  only  be  used  as 
a  whole,  it  is  indispensable  in  conducting  the  business  of 
mining  that  those  owning  the  larger  portion  of  the  property 
should  have  the  power  to  control,  in  case  all  cannot  agree, 
for  otherwise  the  work  might  become  wholly  discontinued 
at  any  time.  The  powers  of  the  individual  members  of  a 
mining  partnership  are  much  more  limited  than  are  the 
powers  of  the  individual  members  of  a  purely  commercial 
or  trading  partnership.  What  may  be  necessary  and  proper 
for  carrying  on  the  business  of  mining,  for  the  joint  benefit 
of  all  concerned,  must  always  be  determined  by  those  own- 
ing and  holding  in  the  aggregate  the  majority  interest  in 
the  property.  And  if  the  powers  which  are  thus  exercised 
by  the  majority  are  not  necessary  and  proper  for  the  suc- 
cess of  the  enterprise,  those  whose  interests  may  be  im- 
periled or  disastrously  afifected  by  the  improper  conduct  of 
the  majority  have  the  right  to  resort  to  the  courts  for 
redress  and  protection. 

Civil  Code,  Section  2520. 

Section  429.— DURATION  OF  PARTNERSHIP.— If  no 
term  is  prescribed  by  agreement  for  the  duration  of  a  part- 
nership, a  general  partnership  will  continue  for  an  indefinite 
time,  until  dissolved  by  mutual  consent,  or  by  a  partner,  or 
by  the  law. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  329 

Section  430.— TOTAL  DISSOLUTION  OF  PART- 
NERSHIP.— A  general  partnership  is  dissolved  as  to  all 
of  the  partners:  (1)  By  lapse  of  the  time  prescribed  by 
agreement  for  its  duration ;  (2)  By  the  expressed  will  of 
any  partner,  if  there  is  no  such  agreement ;  (3)  By  the 
death  of  a  partner;  (4)  By  the  transfer  to  a  person,  not  a 
partner,  of  the  interest  of  any  partner  in  the  partnership 
property;  (5)  By  war,  or  the  prohibition  of  commercial 
intercourse  between  the  country  in  which  one  partner  re- 
sides and  that  in  which  another  resides ;  or,  (6)  By  a  judg- 
ment of  dissolution.  But,  as  we  have  already  seen,  there  is 
an  exception  in  the  case  of  a  mining  partnership,  which  is 
not  dissolved  by  the  death  of  one  partner  or  the  sale  of 
the  partner's  interest. 

Civil   Code,   Section  2450. 

Section  431.— PARTIAL  DISSOLUTION  OF  PART- 
NERSHIP.—A  general  partnership  may  be  dissolved,  as 
to  himself  only,  by  the  expressed  will  of  any  partner,  not- 
withstanding his  agreement  for  its  continuance;  subject, 
however,  to  liability  to  his  copartners  for  any  damage 
caused  them. 

Civil  Code,  Section  2451. 

Section  432.— WHEN  PARTNER  ENTITLED  TO  DIS- 
SOLUTION.— A  partner  is  entitled  to  a  dissolution,  (1) 
When  he,  or  another  partner,  becomes  legally  incapable 
of  contracting;  (2)  When  another  partner  fails  to  perform 
his  duties  under  the  agreement  of  partnership,  or  is  guilty 
of  serious  misconduct ;  or,  (3)  When  the  business  of  the 
partnership  can  be  carried  on  only  at  a  permanent  loss. 

Partners  may,  at  the  time  of  forming  the  partnership, 
prescribe  the  period  for  which  it  shall  endure,  and  how  and 
when  it  may  be  determined.  Its  continuance  may  be  for 
a  definite  term,  or  it  may  be  at  the  will  of  the  partners; 
and  it  is  well  settled  that  a  partnership  at  will  may  be 
terminated  at  the  pleasure  of  any  member  of  the  firm,  so 


330  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

long  as  he  acts  without  fraudulent  intent.  As  partnerships 
are  formed  by  the  mutual  agreement  of  all  the  partners,  so 
may  they  be  altered,  modified,  or  dissolved,  by  like  agree- 
ment. A  partnership  for  a  definite  period  may  be  dissolved 
by  mutual  consent.  But  an  express  agreement  to  dis- 
solve is  not  necessary.  Words  and  acts  implying  such 
intention  are  sufficient.  If  partners,  by  mutual  consent, 
cease  to  do  business,  and  divide  the  partnership  property, 
this  amounts  to  a  dissolution,  as  much  as  if  done  by  an 
express  agreement  to  that  effect.  A  partnership  is  none 
the  less  ended  by  reason  of  the  fact  that  certain  specific 
property  of  the  firm,  after  a  settlement  and  adjustment  of 
the  firm  business,  remains  unsold,  and  that  each  partner, 
under  the  settlement,  retains  his  proportionate  part  of  such 
property. 

Notwithstanding  that  a  time  for  the  dissolution  of  a  firm 
may  be  fixed  by  partnership  articles,  or  that  the  partners 
may  dissolve  by  agreement,  express  or  implied,  before  such 
time,  the  partnership  may  be  dissolved  by  the  happening 
of  any  of  the  events  which,  in  law,  are  held  to  effect  that 
result.  Thus,  the  withdrawal  of  a  partner  causes  a  dis- 
solution of  the  firm ;  and  the  introduction  of  a  new  member 
into  an  existing  partnership  works  its  dissolution,  and  the 
creation  of  a  new  partnership.  If  both  partners  refuse  to 
perform  their  part  of  the  partnership  agreement,  there  is 
no  law  requiring,  or  recognizing,  a  continuance  of  the  part- 
nership. A  firm  is  dissolved  when  it  ceases  to  do  the  busi- 
ness for  which  it  was  organized. 

The  mere  fact,  alone,  that  a  partnership  is  insolvent  does 
not  operate  as  a  dissolution  of  the  firm.  There  must  be  a 
stoppage  of  payment,  assignment,  or  act  amounting  in  law 
to  a  declaration  of  insolvency,  to  work  a  dissolution.  An 
assignment,  however,  by  copartners,  for  the  benefit  of  their 
creditors,  of  the  entire  firm  assets,  except  property  exempt 
from  execution,  operates  as  a  dissolution  of  the  partnership. 

The  mere  filing  of  an  attachment  against  partnership 
oroperty  does  not  dissolve  the  partnership;  nor  will  the 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  331 

mere  seizure  of  such  property  under  a  writ  of  attachment 
have  that  effect ;  and  it  has  been  held  by  the  courts  that  the 
seizure  under  execution  of  the  interest  of  a  defendant  in 
partnership  property  does  not  dissolve  the  partnership; 
but  a  levy  of  execution  against  one  partner  on  his  interest 
in  the  firm,  and  the  sale  of  such  interest,  does  dissolve  the 
firm. 

A  sale  which  practically  includes  all  of  the  property  used 
by  a  firm  in  carrying  on  its  business,  whether  made  by  the 
firm  or  by  a  member,  operates  as  a  dissolution  of  the  part- 
nership. The  destruction  of  the  property  which  is  the  sub- 
ject matter  of  the  copartnership  is  another  cause  which 
will  work  a  dissolution.  A  court  of  equity  may  decree  the 
dissolution  of  a  partnership  during  the  term  for  which  it 
was  entered  into,  and  declare  it  void,  where  there  is  fraud, 
imposition,  misrepresentation,  or  oppression  in  the  original 
agreement. 

Equity  has  jurisdiction,  where  a  person  has  been  induced 
by  fraudulent  representation  to  enter  into  a  partnership, 
to  rescind  the  contract  at  his  instance,  and  put  an  end  to  it. 
Misrepresentation  of  material  facts  is  a  ground  for  setting 
aside  a  partnership  contract.  A  person  who  has  been  in- 
duced to  enter  into  a  partnership,  by  a  material  misrepre- 
sentation of  the  other  party,  is  entitled  to  have  the  contract 
set  aside. 

One  partner  cannot,  by  any  act  of  his  own,  and  at  his 
will,  terminate  a  partnership  for  a  fixed  period,  before  that 
period  has  elapsed.  A  partnership  agreement,  like  any 
other,  is  binding  upon  the  parties,  and  they  must  adhere 
to  its  terms.  Neither  partner  is  at  liberty  to  recede  from  it 
against  the  will  of  the  other,  without  a  sufficient  cause. 

A  court  of  equity  may  decree  a  dissolution  of  the  part- 
nership, for  causes  arising  subsequently  to  the  formation 
of  the  contract,  founded  upon  misconduct,  or  fraud, 
or  violation  of  duty,  of  one  partner;  or  on  account  of 
the  inability  or  incapacity  of  one  partner  to  perform  his 
obligations  and  duties,  and  to  contribute  his  skill,  labor. 


332  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

and  diligence  in  the  promotion  and  accomplishment  of  the 
objects  of  the  partnership;  or  for  the  existence  of  facts 
rendering  it  impracticable  to  carry  on  the  undertaking  for 
which  the  partnership  was  formed. 

A  court  of  equity  will  dissolve  a  partnership  where  all 
confidence  between  the  partners  has  been  destroyed,  so 
that  they  cannot  proceed  together  in  prosecuting  the  busi- 
ness for  which  it  was  formed.  And  this  result  follows, 
not  only  where  such  want  of  confidence  is  occasioned '  by 
the  misconduct  or  gross  mismanagement  of  the  partner 
against  whom  the  dissolution  is  sought,  but  also  when  such 
want  of  confidence  and  distrust  has  arisen  from  other  cir- 
cumstances, provided  it  has  become  such  as  cannot  prob- 
ably be  overcome.  But  a  partner  who,  by  his  own  wilful 
misconduct,  has  caused  such  want  of  confidence,  will  not 
be  allowed  to  take  advantage  of  it  to  procure  a  dissolution. 
If  a  partner's  acts  are  inconsistent  with  the  duty  of  part- 
ners, and  of  a  nature  to  destroy  the  mutual  confidence  which 
ought  to  subsist  between  them,  and  makes  it  impossible 
that  the  business  can  be  conducted  in  partnership  with 
benefit  to  either  party,  a  court  of  equity  will  decree  a  dis- 
solution before  the  expiration  of  the  term  for  which  the 
partnership  was  entered  into.  The  same  is  true  where  the 
circumstances  have  so  changed  as  to  render  it  impossible 
to  carry  on  the  partnership  without  injury  to  all  the  part- 
ners. A  partnership  will  be  dissolved  where  one  of  the 
firm  has  deliberately  resolved  to  break  up  and  ruin  its 
business,  or  where  ill  feeling  between  the  partners  renders 
it  impossible  to  conduct  the  business  successfully. 

The  wrongful  exclusion  of  one  partner  from  the  business, 
or  refusal  to  allow  him  to  inspect  the  books,  is  a  cause  for 
dissolution  of  the  partnership. 

It  is  a  sufficient  cause  for  dissolution  of  a  partnership 
that  it  clearly  appears  that  the  business  for  which  the  part- 
nership was  formed  is  impracticable,  or  cannot  be  carried 
on  except  at  a  loss. 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  333 

A  partner's  failure  or  refusal  to  comply  with  the  terms 
of  the  partnership  agreement  as  to  contributing  capital  or 
funds  required  for  the  successful  prosecution  of  the  busi- 
ness is  also  a  cause  for  dissolution,  whether  such  failure 
or  refusal  arises  from  disinclination  or  inability.  Thus, 
if  a  partnership  is  formed  for  the  purpose  of  buying  and 
selling  land,  each  partner  to  furnish  an  equal  share  of 
money,  the  refusal  of  one  to  make  the  necessary  advances 
would  be  a  good  cause  for  putting  an  end  to  the  partner- 
ship. And,  if  a  partner  refuses  to  manufacture  articles  as 
agreed,  so  as  to  make  the  works  profitable,  it  is  a  cause 
for  dissolution. 

If  a  partner,  by  reason  of  his  infirmities,  becomes  totally 
incapable  of  performing  the  partnership  duties  incumbent 
upon  him,  a  dissolution  will  be  decreed,  not  only  to  protect 
the  partner  who  has  become  incapacitated,  but  to  relieve 
the  other  from  the  difficult  position  in  which  he  is  placed. 
Confirmed  and  incurable  insanity  is  a  ground  for  dissolv- 
ing a  partnership,  and  when  it  is  shown  that  a  partner 
is  so  far  disordered  in  his  mind  as  to  be  incapable  of  con- 
ducting the  firm  business  according  to  the  terms  of  the 
contract  of  copartnership,  a  court  of  equity  will  dissolve 
the  firm.  After  an  adjudication  of  the  insanity  of  one  part- 
ner, the  continuing  partner  may  apply  for  a  dissolution 
of  the  partnership,  if  he  so  desires ;  or,  if  it  is  a  partner- 
ship at  will,  he  may  dissolve  it  of  his  own  volition ;  but 
where  one  partner  has*  been  adjudged  insane,  and  the  re- 
maining partner  continues  the  business  as  before,  without 
objection  or  notice  to  any  one,  it  is  presumed  that  he  did 
not  intend  a  dissolution  of  the  firm,  but  that  he  waited 
to  determine  whether  the  incapacity  of  his  partner  would 
prove  merely  temporary,  and  whether  it  would  become  prac- 
ticable for  him  to  resume  business.  So  long  as  he  thus  con- 
tinues to  carry  on  the  business,  without  seeking  to  dissolve 
the  partnership,  there  is  no  dissolution,  nor  is  he  excused 
from  accounting  for  the  profits  derived  by  him  from  the 
business  of  the  firm. 


334  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Partners  may  provide  in  their  contract  that  certain  acts 
or  conduct  shall  operate  to  dissolve  the  partnership ;  but, 
in  the  absence  of  special  agreement,  courts  may  dissolve 
a  partnership  for  misconduct,  gross  neglect,  or  breach  of 
partnership  duty.  As  a  general  rule,  gross  misconduct, 
want  of  good  faith,  or  gross  want  of  diligence,  or  such 
cause  as  is  productive  of  serious  and  permanent  injury  to 
the  partnership  concerns,  or  renders  it  impracticable  to 
carry  on  the  partnership  business,  is  proper  ground  for 
dissolution.  Habitual  intoxication,  extravagance,  and  dis- 
honesty are  good  grounds  for  dissolution. 

If  quarrels,  dissensions,  or  chronic  hostility  between  part- 
ners are  of  such  serious  and  permanent  character  as  to 
prevent  the  profitable  fontinuance  of  the  partnership  busi- 
ness, on  the  terms  of  the  agreement  between  the  partners, 
a  dissolution  will  be  decreed.  Violent  disputes,  ill  will, 
or  dissensions  between  the  partners,  which  entirely  prevent 
the  beneficial  effects  of  a  connection,  are  sufficient  to  justify 
a  decree  of  dissolution.  A  dissolution  should  be  decreed 
where  it  appears  that  the  partners  are  in  a  constant  state 
of  quarrel;  that  one  makes  a  rule  of  going  to  the  office  at 
an  early  hour,  opening  all  the  letters  addressed  to  the  firm, 
and  failing  to  communicate  the  contents  to  the  other;  that 
the  other  partner  is  always  arbitrary  in  his  action ;  and  that, 
generally,  what  one  wants  to  do  the  other  objects  to. 

A  court  of  equity  will  not  dissolve  a  copartnership  unless 
cause  is  shown,  and  the  mere  de'sire  of  a  partner  for  a 
dissolution  is  not  a  sufficient  cause.  It  is  not  for  every 
act  of  misconduct  on  the  part  of  one  partner  that  a  court 
of  equity,  at  .the  instance  of  another  partner,  will  dissolve 
the  partnership  and  close  up  the  affairs  of  the  company. 
The  court  will  require  a  strong  case  to  be  made,  and  it  is  a 
general  principle  that  a  court  has  no  jurisdiction  to  make 
a  separation  between  partners  for  trifling  causes,  or  tem- 
porary grievances,  involving  no  permanent  mischief.  Thus, 
it  is  not  sufficient  cause  for  the  dissolution  of  a  firm  that 
a   loss   occurs   to    it    through    a    partner's    mere    error    of 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  335 

judgment,  or  that  there  is  a  mere  dissatisfaction  between 
partners.  A  court  of  equity  will  not  decree  a  dissolution  of 
a  partnership,  unless  it  is  shown  that  the  defendant  has 
substantially  failed  in  the  performance  of  his  part  of  the 
partnership  agreement. 

Civil  Code,  Section  2452. 

Section  433.— NOTICE  OF  DISSOLUTION  OF  PART- 
NERSHIP,— The  liability  of  a  general  partner  for  the  acts 
of  his  copartners  continues,  even  after  a  dissolution  of  the 
copartnership,  in  favor  of  persons  who  have  had  dealings 
with  and  given  credit  to  the  partnership  during  its  exist- 
ence, until  they  have  had  personal  notice  of  the  dissolution. 
The  liability  of  a  partner  may  extend  beyond  the  indebted- 
ness existing  at  the  dissolution,  and  include  indebtedness 
subsequently  contracted  in  favor  of  persons  relying  on  the 
partnership,  and  who  did  not  have  any  notice  of  its  disso- 
lution. Those  who  have  dealt  with  the  firm  before  disso- 
lution are  entitled  to  hold  all  the  partners  liable  for  debts 
contracted  afterwards  in  good  faith,  in  the  belief  that  the 
firm  still  continues,  and  in  reliance  upon  its  assets  and  the 
personal  responsibility  of  its  members.  As  to-  such  cus- 
tomers, actual  notice  is  required  to  exempt  from  liability 
any  member  of  the  firm,  though  he  has  retired.  The  fact 
that  notice  was  mailed  to  such  customer,  or  was  published 
in  a  newspaper  of  general  circulation,  and  such  newspaper 
mailed  to  a  creditor  with  a  red  line  drawn  about  the  notice 
for  the  purpose  of  attracting  attention  to  it,  or  that  the  dis- 
solution had  attained  general  notoriety,  cannot  defeat  the 
customer's  claim  to  hold  all  the  members  of  the  firm  an- 
swerable, if  it  appears  that  he  did  not  have  actual  notice  of 
the  dissolution.  Persons  who  have  not  dealt  with  the  firm 
before  its  dissolution  are  not  entitled  to  actual  notice,  and 
cannot  hold  a  retiring  member  answerable  if  notice  of  the 
dissolution  has  been  given  by  publication  in  a  newspaper. 
A  change  of  the  partnership  name,  which  plainly  indicates 
the  withdrawal  of  a  partner,  is  sufllicient  notice  of  the  fact 


336  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

of  such  withdrawal  to  all  persons  to  whom  it  is  communi- 
cated ;  but  a  change  in  the  name,  which  does  not  contain 
such  an  indication,  is  not  notice  of  the  withdrawal  of  any 
partner. 

Civil  Code,  Sections  2453,  2454. 

Section  434.--WINDING  UP  THE  PARTNERSHIP 
AFFAIRS. — After  the  dissolution  of  a  partnership,  its 
affairs  must  be  wound  up,  and  its  property  disposed  of. 
No  new  contracts  are  to  be  made,  no  new  business  trans- 
acted; but  only  the  final  disposition  of  the  assets  of  the 
firm,  the  collection  of  the  accounts,  the  payment  of  the 
debts,  the  distribution  of  the  property  left  over.  Any  mem- 
ber of  a  general  partnership  may  act  in  the  winding  up  of 
its  affairs.  By  consent  of  all  the  partners,  the  final  settle- 
ment of  the  affairs  of  the  firm  may  be  committed  to  one 
of  the  partners,  and  the  other  partners  will  then  have  no 
right  to  act.  The  partner  authorized  to  act  in  liquidation 
may  collect,  compromise,  or  release  any  debts  due  to  the 
partnership,  and  pay  or  compromise  any  claims  against  it, 
and  dispose  of  the  partnership  property;  he  may  also  in- 
dorse, in  the  name  of  the  firm,  promissory  notes  or  other 
obligations  held  by  the  partnership,  for  the  purpose  of  col- 
lecting them,  but  he  cannot  create  any  new  obligation  in 
the  name  of  the  firm. 

Civil  Code,  Sections  2459,  2460,  2461,  2462. 

Section  435.— RIGHTS  OF  PARTNERS  AFTER  DIS- 
SOLUTION.— Each  partner,  after  the  dissolution  of  the 
firm,  has  an  equal  right  to  the  possession  of  its  assets.  And 
if  the  liquidation  of  the  partnership  affairs  is  not  left  in 
the  hands  of  certain  members  of  the  firm,  by  consent  of 
all  the  partners,  then  each  partner  has  the  right  to  do 
whatever  acts  are  necessary  to  complete  the  business  of 
the  partnership,  and  fulfil  its  contracts ;  and,  as  each  partner 
is  interested  in  seeing  the  business  closed,  by  the  collection 
of  the  assets,  and  the  payment  of  the  firm's  obligations,  and 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  337 

a  division  of  the  remainder,  each  may  take  steps  looking 
to  that  end,  and  exercise  the  power  vested  in  him  as  a 
partner  to  dispose  of  and  preserve  the  property  of  the  firm 
and  pay  its  obligations.  After  the  dissolution  of  the  firm, 
each  of  the  partners  has  the  right  to  enter  into  the  same 
or  any  other  business  on  his  own  account.  If  property 
of  the  firm  is  in  the  possession  of  one  of  the  members  of 
the  partnership,  he  has  the  power  to  take  such  measures 
as  are  necessary  for  its  preservation  and  protection.  Each 
of  the  partners,  in  the  absence  of  an  agreement  to  the  con- 
trary, is  bound  to  give  his  services  to  the  business  of  the 
firm,  and  this  remains  true  after  its  dissolution  so  far  as 
is  necessary  to  the  winding  up  of  its  affairs.  After  the 
dissolution  of  the  partnership,  each  partner  remains  liable 
for  the  indebtedness  of  the  firm,  to  the  same  extent  as 
before. 

Section  435a.— FORM  OF  PARTNERSHIP  AGREE- 
MENT.— The  following  is  a  form  of  partnership  agree- 
ment: 

Articles   of  Copartnership,    made   and   entered   into   the 

day  of    ,    190 .. ,   between 

,  of  , 

State  of  California,  and   

,  of  the  same  place : 

The  said  parties  above  named  have  agreed,  and  by  these 
presents  do  agree,  to  become  partners  in  business  together, 
under  and  by  the  name,  firm,  and  style  of  (here  state  name 
of  firm),  in  the  business  of  (here  state  the  kind  of  business 
to  be  transacted  by  the  firm),  at  (here  state  name  of  place 
where  the  business  is  to  be  conducted),  State  of  Califor- 
nia; their  copartnership  to  commence  on  the    

day  of ,  190 .. ,  and  to  continue 

years  thence  next  ensuing,  fully  to  be  completed  and  ended, 
and  to  that  end  and  purpose  the  said  parties  have  deliv- 
ered in  as  capital  stock  the  sum  of  

Dollars,  gold  coin  of  the  United  States,  share  and  share 
alike,  to  be  used  and  employed  in  common  between  them, 
for  the  support  and  management  of  the  said  business,  to 
their  mutual  benefit  and  advantage.     And  it  is  agreed,  by 


338  BUSINESS  LAWS   FOR  BUSINESS   MEN. 

and  between  the  said  parties,  that  at  all  times  during  the 
continuance  of  their  copartnership,  they  and  each  of  them 
will  give  their  attendance,  and  do  their  and  each  of  their 
best  endeavors,  and  to  the  utmost  of  their  skill  and  power 
exert  themselves,  for  their  joint  interest,  profit,  benefit, 
and  advantage,  in  the  business  aforesaid ;  that  they  shall 
and  will,  at  all  times  during  their  copartnership,  bear,  pay,, 
and  discharge,  equally  between  them,  all  rents  and  other 
expenses  that  may  be  required  for  the  support  and  man- 
agement of  the  said  business ;  that  all  gains,  profits,  and 
increase  that  shall  come,  grow,  or  arise  from  or  by  means 
of  the  said  business,  shall  be  divided  between  them,  share 
and  share  alike;  and  all  loss  that  shall  happen  to  their  said 
joint  business,  by  bad  debts,  or  otherwise,  shall  be  borne 
and  paid  equally  between  them ;  that  there  shall  be  kept, 
at  all  times  during  the  continuance  of  their  copartnership, 
perfect,  just,  and  true  books  of  accounts,  wherein  each 
of  the  said  copartners  shall  enter  and  set  down,  as  well 
all  money  by  them,  or  either  of  them,  received,  paid,  laid 
out,  and  expended,  in  and  about  the  said  business,  as  also 
all  the  goods,  wares,  merchandise,  and  commodities,  by 
them,  or  either  of  them,  bought  or  sold,  by  reason  or  on 
account  of  the  said  business,  and  all  other  matters  and 
things  whatsoever,  to  the  said  business  and  management 
thereof  in  anywise  belonging;  which  said  books  shall  be 
used  in  common  between  the  said  copartners,  so  that  either 
of  them  may  have  access  thereto  without  any  interruption 
or  hindrance  of  the  other;  that  the  said  copartners,  once 
in  each  year,  during  the  continuance  of  the  said  copart- 
nership, as  aforesaid,  to-wit :  on  the    day 

of ,  in  each  year,  or  oftener  if  necessary, 

shall  make,  yield,  and  render,  each  to  the  other,  a  true,  just, 
and  perfect  inventory  and  account,  of  all  the  profits  and 
increase  by  them,  or  either  of  them,  made,  and  of  all  loss, 
by  them,  or  either  of  them,  sustained,  and  also  of  all  pay- 
ments, receipts,  disbursements,  and  of  all  other  things  by 
them  made,  received,  disbursed,  acted,  or  suffered,  in  their 
said  business ;  and  the  said  account  being  so  made,  they 
shall  and  will  clear  and  adjust,  each  to  the  other,  at  the 
time,  their  just  share  of  the  profits  so  made  as  aforesaid; 
that  during  the  continuance  of  the  said  copartnership, 
neither  of  them  shall  or  will  indorse  any  note,  or  otherwise 
become  security  for  any  person  or  persons  whomsoever, 
without  the  consent  of  the  other  said  copartner;  that  at 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS,  339 

the  end  of  said  term,  or  other  sooner  determination  of 
their  copartnership,  the  said  copartners,  each  to  the  other, 
shall  and  will  make  a  true,  just,  and  final  account  of  all 
things  relating  to  their  said  business,  and  in  all  things 
truly  adjust  the  same;  and  that  all  and  every  stock  and 
stocks,  as  well  as  the  gains  and  increase  thereof,  which 
shall  appear  to  be  remaining,  either  in  money,  goods,  wares, 
fixtures,  debts,  or  otherwise,  shall  be  divided  between  them, 
share  and  share  alike. 

In  witness  whereof  the  parties  hereto  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 


Surveys  of  Land 

Section  436.— PUBLIC  AND  PRIVATE  LAND  SUR- 
VEYS.— One  of  the  fruitful  causes  of  litigation  in  Califor- 
nia, litigation  which  involves  the  title  and  possession  of 
land  in  nearly  every  county  in  the  State,  and  the  legal  rights 
and  obligations  of  thousands  of  people,  is  the  question  of 
the  correctness  of  public  and  private  land  surveys.  There- 
fore, every  owner  of  land,  especially  in  the  rural  districts 
of  the  State,  is  interested  in  knowing  something  about  the 
law  relative  to  public  and  private  land  surveys. 

Section  437.— GOVERNMENT  SURVEYS.— It  is  im- 
portant for  the  landowner,  when  he  believes  or  is  informed 
that  others  are  encroaching  upon  the  lines  of  his  land  as 
originally  surveyed  and  established,  to  know  what  the  law 
is  as  to  Government  surveys.  For  private  surveys,  made 
by  County  Surveyors  or  other  surveyors  at  the  request  of 
individual  owners,  can  have  but  one  object,  and  that  is  to 
find  where  the  lines  Avere  originally  established  by  the  Gov- 
ernment survey.  For  the  purpose  of  giving  such  informa- 
tion as  may  be  of  value  to  the  landowner,  the  following 
sections  under  the  head  of  "Surveys  of  Land"  have  been 
prepared. 


340  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  438.— GOVERNMENT  SURVEY  ACCEPTED 
AND  APPROVED  IS  FIXED  AND  UNCHANGEABLE. 

■ — First,  it  is  important  to  know,  that  a  survey  accepted  and 
approved  by  the  Government  of  the  United  States  is  fixed 
and  unchangeable.  People  may  think  that  the  original 
survey  was  not  correct,  but  that  makes  no  difference.  As 
a  matter  of  fact,  very  few  Township  surveys  are  absolutely 
correct,  and  in  many  of  them  serious  errors  were  made 
as  reported  by  the  Government  surveyors.  And,  too,  many 
of  those  who  took  contracts  to  survey  Government  lands 
were  dishonest  or  incompetent,  or  both  together,  and  in- 
stead of  going  over  the  ground,  this  class  of  surveyors  con- 
tented themselves  with  sitting  on  a  rock  and  guessing  at 
the  surrounding  country.  But  it  was  in  the  interest  of 
the  peace  and  security  of  settlers  upon  the  public  domain 
that  their  occupation  of  the  land  should  not  be  disturbed 
afterwards  by  the  claim  that  the  Government  survey  was 
not  properly  or  correctly  made;  and  as  all  titles  to  land 
in  this  country  run  back  to  the  original  ownership  of  the 
Government,  it  is  evident  that  the  extent  and  lines  of  any 
particular  lot  of  land  must  rest  upon  the  original  survey 
made  for  and  accepted  by  the  United  States ;  and  for  the 
purpose  of  security  in  titles,  and  so  that  private  surveys 
may  have  something  solid  to  rest  upon,  the  Government  of 
the  United  States  has  adopted  the  unvarying  rule,  that  a 
survey  accepted  and  approved  by  the  Government  of  the 
United  States,  whether  correct  or  incorrect,  is  final  and 
conclusive,  fixed  and  unchangccible,  and  neither  oral  evi- 
dence nor  private  surveys  can  be  admitted  to  contradict  it. 

Section  439.— FINDING  ORIGINAL  LOCATION  OF 
TOWNSHIP  LINE.— After  many  years,  it  frequently  hap- 
pens that  adjoining  land  owners  will  differ  as  to  the  place 
where  the  Government  surveyor  really  located  a  Township 
line,  and  to  ascertain  its  true  location  in  the  lapse  of  a 
quarter  of  a  century  or  more  may  be  a  matter  of  much  dif- 
ficulty  for  private   surveyors.     Mounds   of  stone  may  have 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  341 

fallen  down  and  become  scattered  so  as  to  lose  their  iden- 
tity ;  corner  stakes  may  have  been  burned  away  or  pulled 
up  and  cast  aside;  witness  trees  may  have  disappeared, 
by  fire,  or  the  ax,  or  by  natural  decay,  or  force  of  storms ; 
so  that  all  or  nearly  all  of  the  monuments  marked  and 
placed  upon  the  line  by  the  Government  surveyor,  as  he 
ran  and  established  it,  may  have  become  obliterated  and 
lost  in  the  course  of  time.  But  the  law  has  established 
certain  rules  and  regulations  for  the  guidance  of  private 
surveyors  under  such  circumstances,  which  rules  and  regu- 
lations must  always  be  followed  by  a  surveyor  seeking  to 
locate  the  place  where  the  line  was  originally  established, 
if  he  expects  to  make  a  survey  that  will  be  of  any  value 
to  his  employer. 

Section  440.— FIELD  NOTES  AND  MAPS.— A  private 
surveyor,  seeking  to  find  the  true  location  of  the  Govern- 
ment lines,  should  have  with  him  the  field  notes  and  maps 
of  the  original  survey,  certified  copies  of  which  can  be  ob- 
tained from  the  office  of  the  United  States  Surveyor- 
General  through  the  office  at  San  Francisco.  The  field 
notes  are  always  to  be  considered  before  the  maps.  The 
field  notes  made  by  the  Government  surveyor  afford  the 
best  evidence  of  the  place  where  the  line  was  located,  and 
control  the  maps  or  plats.  The  maps  are  made  from  the 
field  notes,  therefore  the  field  notes  are  entitled  to  first 
consideration. 

Section  441.— MONUMENTS   ON   THE  GROUND.— 

The  private  surveyor,  employed  to  locate  the  Government 
line,  must  find  the  monuments  on  the  ground,  called  for 
by  the  field  notes.  If  the  original  stakes,  and  mounds  of 
rock,  and  witness  trees,  marked  for  Section  corners  and 
quarter  Section  corners,  and  closing  corners  on  the  Town- 
ship line,  are  all  in  place,  where  the  Government  surveyor 
put  them,  and  as  called  for  by  the  field  notes,  the  work  of 
the  private  surveyor  will  be  easy.     But  in  controversies 


342  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

which  arise  over  boundaries  of  land,  it  nearly  always  hap- 
pens that  most  of  the  artificial  monuments,  the  stakes,  and 
mounds,  have  disappeared,  and  that  some  of  the  witness 
trees  cannot  be  found.  It  is  the  duty  of  the  private  sur- 
veyor to  try  to  find  the  stakes  set  by  the  Government  sur- 
veyor, of  course ;  but  if  he  finds  stakes,  with  the  right  marks 
for  certain  corners,  it  may  be  denied  that  they  are  the  origi- 
nal stakes,  or  it  may  be  claimed  that  they  have  been  moved 
from  the  place  where  the  original  surveyor  placed  them. 
So  that  the  natural  objects  called  for  by  the  field  notes, 
objects  which  never  change,  and  cannot  be  moved,  such 
as  creeks,  rivers,  blufiFs,  roads  or  trails,  ponds,  ridges,  or 
other  permanent  features  of  the  earth's  surface,  when  found 
by  the  private  surveyor  in  the  position  corresponding  to 
the  calls  of  the  field  notes,  are  really  the  most  certain  and 
satisfactory  evidence  that  he  is  on  the  right  line.  And 
from  the  observations  above  made,  it  may  be  said,  that 
the  rule  as  to  monuments  which  must  govern  the  private 
surveyor  in  his  work,  and  which  will  always  be  safe  for 
the  land  owner  for  whom  the  work  is  being  done,  is  as 
follows :  It  was  the  duty  of  the  Government  surveyor  to 
note  all  natural  objects  in  his  field  notes,  and  in  trying  to 
find  where  the  Township  line  was  actually  run  and  estab- 
lished by  the  Government  survey,  the  private  surveyor 
must  give  careful  consideration,  with  reference  to  the  field 
notes,  to  permanent  monuments  set,  their  size,  kind,  and 
location,  with  reference  to  the  corners  which  they  are  in- 
tended to  perpetuate;  bearing  or  witness  trees  marked  in 
the  field;  all  nearest  known  original  corners,  in  all  direc- 
tions, following  section  lines;  all  natural  objects  called  for 
by  the  field  notes,  such  as  creeks,  rivers,  blufiFs,  roads  or 
trails,  ponds,  ridges,  or  other  unchanging  features  of  the 
earth's  surface. 

Section  442.— TOWNSHIPS.— The  public  lands  of  the 
United  States  are  primarily  surveyed  into  uniform  rectangu- 
lar tracts,  six  miles  square,  called  Townships,  bounded  by 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  343 

lines  conforming  to  the  cardinal  points — North,  South,  East, 
and  West — and  containing,  as  nearly  as  may  be,  23,040 
acres. 

Section  443.— SECTIONS.— The  Townships  are  sub- 
divided into  thirty-six  tracts,  one  mile  square,  called  Sec- 
tions, containing  in  full  Sections  640  acres.  The  Sections 
in  a  Township  are  numbered  consecutively  from  1  to  36, 
beginning  at  the  Northeast  corner  of  the  Township  and 
numbering  West  with  the  North  tier  of  Sections,  thence 
East  with  the  second  tier.  West  with  the  third  tier,  and  so 
on  to  Section  36  in  the  Southeast  angle  of  the  Township. 

Section  444.— SUBDIVISIONS  OF  SECTIONS.— Sec- 
tions are  divided  into  four  equal  parts  of  160  acres  each, 
called  quarter  Sections,  and  each  quarter  Section  is  again 
divided  into  two  half-quarter  Sections  of  80  acres,  or  four 
quarter-quarters  containing  40  acres  each.  These  are 
called  Legal  Subdivisions,  and  are  the  only  divisions  rec- 
ognized by  the  Government  in  disposing  of  the  public  lands, 
except  where  tracts  are  made  fractional  by  water  courses 
or  other  causes.  When  tracts  are  fractional,  the  smallest 
legal  subdivision  may  contain  less  than  40  acres  or  more 
than  40  acres,  and  they  are  then  designated  as  Lots,  to 
distinguish  them  from  the  legal  subdivisions  which  con- 
tain exactly  40  acres.  The  subdivisions  of  Sections  are 
not  actually  surveyed  and  marked  on  the  ground.  Quarter 
section  or  half  mile  posts  are  established  on  the  boundaries 
of  the  Sections;  but  the  interior  subdivisional  lines  of  Sec- 
tions are  made  only  on  the  plats  of  Townships,  at  the 
Surveyor-General's  office,  and  when  the  boundaries  of  these 
subdivisions  are  required  to  be  established  on  the  ground, 
it  must  be  done  by  a  private  survey. 

Section  445.— PRINCIPAL  MERIDIANS  AND  BASE 
LINES. — Two  principal  lines  are  established  prior  to  the 
survey  of  the  Townships — a  north  and  south  line  denominated 


344  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

a  Principal  Meridian,  and  an  east  and  west  line  styled 
a  Base  Line.  These  lines  constitute  the  basis  of  the  pub- 
lic surveys,  and  are  prerequisite  to  the  laying  out  of  the 
Township. 

Section  446. — RANGES. — Any  number  or  series  of  Town- 
ships situated  in  a  tier  North  and  South  are  denominated 
a  Range,  and  the  Ranges  are  designated  by  numbers  East 
and  West,  as  the  case  may  be,  from  the  governing  merid- 
ians. The  Townships  in  each  Range  are  also  numbered 
North  or  South  from  established  base  lines. 

Section  447.— STANDARD  CORNERS.— At  the  time 
the  parallels  and  base  line  are  run,  the  Township,  Section, 
and  quarter  Section  corners  are  established  thereon.  As 
the  Township  and  Section  lines  North  are  run  from  them, 
it  follows  that  these  corners  will  be  common  to  two  Town- 
ships, Sections,  or  quarter  Sections  North  of  the  parallel 
or  base  line,  and  these  are  called  Standard  Corners. 

Section  448.— CLOSING  CORNERS.— North  and  South 
lines  are  required  to  run  on  the  true  meridian.  Hence, 
when  the  Township  and  Section  lines  below  reach  the 
parallels  or  base  lines  North,  they  will  not  close  on  the 
Standard  Corners  if  the  field  of  operation  be  West  of  the 
convergency  of  the  meridians,  but  will  strike  the  line  at 
a  distance  corresponding  to  the  convergency;  East  of  the 
Standard  Corners  if  the  field  of  operation  be  West  of  the 
governing  meridian,  and  West  of  said  corners  if  the  sur- 
veys be  East  of  the  principal  meridian.  Another  set  of 
Township  and  Section  corners  is  therefore  establisl'ied  at 
the  point  of  intersection  with  the  standard  or  base  line, 
and  the  distances  of  said  corners  from  the  corresponding 
standard  corners  previously  set,  are  measured  and  noted 
in  the  field  book.  The  corners  so  established  are  called 
Closing  Corners,  and  will,  of  course,  be  common  to  two 
Townships  or  Sections  South  of  the  base  or  standard  line. 
No  closing  quarter  Section  corners  are  established. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  345 

Section  449.— TOWNSHIP  CORNERS.— Township  cor- 
ners are  established  at  intervals  of  six  miles  each,  and  are 
perpetuated  by  the  following  modes:  (1)  The  post  is  placed 
first  in  order,  because  circumstances  render  its  use  most 
common  in  practice.  Corner  posts  are  required  to  be  four 
feet  in  length,  and  at  least  five  inches  in  diameter,  and  are 
to  be  planted  to  the  depth  of  two  feet,  the  part  projecting 
above  the  ground  being  squared  to  receive  the  marks  re- 
quired to  be  cut  upon  them.  When  the  corner  is  common 
to  four  Townships,  the  post  is  set  cornerwi^e  to  the  lines, 
presenting  the  angles  to  the  cardinal  points,  and  on  each 
flattened  side  must  be  marked  the  number  of  the  Town- 
ship, Range,  and  Section  which  it  faces.  Six  notches  will 
also  be  cut  on  each  of  the  four  edges.  If  the  post  is  on 
a  standard  parallel  or  base  line,  and  is  common  to  only 
two  Townships  on  the  North,  six  notches  will  be  cut  in 
the  East,  North,  and  West  edges,  and  the  letters  "S.  C." 
(Standard  Corner)  will  be  cut  on  the  flattened  surface,  but 
no  notches  will  be  cut  in  the  South  edge.  If  the  post  is 
common  to  two  Townships  South  of  the  parallel  or  base 
line,  six  notches  will  be  cut  in  the  East,  South,  and  West 
edges,  but  none  in  the  North  edge,  and  the  letters  "C.  C." 
(Closing  Corner)  must  be  cut  upon  the  flattened  surface. 
The  position  of  all  Township  corner  posts  must  be  wit- 
nessed by  four  bearing  trees,  one  in  each  of  the  adjoining 
Townships,  or  by  "pits,"  where  trees  cannot  be  found. 
(2)  Township  corner  stones  must  be  inserted  in  the  ground 
not  less  than  eight  inches,  with  their  sides  to  the  cardinal 
points,  and  small  mounds  of  stone  should  be  constructed 
against  the  sides  of  them.  The  notches  on  the  edges  are 
the  only  marks  required.  (3)  A  tree  in  place,  when  em- 
ployed to  perpetuate  a  Township  corner,  must  be  marked 
and  witnessed  in  the  same  manner  as  township  posts. 
(4)  The  post  and  mound  is  a  common  method  of  marking 
corners.  Mounds  at  Township  corners  must  be  5  feet  in 
diameter  at  their  base,  and  2^2  feet  in  perpendicular  height. 
Posts  in  Township  mounds,  therefore,  require  to  be  4% 


346  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

feet  in  length,  so  as  to  be  planted  12  inches  in  the  ground, 
and  allow  12  inches  to  project  above  the  mound.  The  pit 
for  a  Township  mound  will  be  18  inches  wide,  2  feet  in 
length,  and  at  least  12  inches  deep,  located  6  feet  from 
post,  and  on  opposite  sides.  At  corners  common  to  four 
Townships,  the  pits  will  be  placed  on  the  line  and  length- 
wise to  them.  On  base  and  parallel  lines,  where  the  corners 
are  common  to  only  two  Townships,  three  pits  only  will 
be  dug — two  in  line  on  either  side  of  the  post,  and  one 
on  the  line  North  or  South  of  the  corner,  as  the  case  may 
be.  By  this  means  the  standard  and  closing  corners  can 
be  readily  distinguished  from  each  other.  Posts  in  mounds 
should  be  notched,  marked,  and  faced  precisely  as  posts 
without  the  mound. 

Section  450.— SECTION  CORNERS.— Section  corners 
are  established  at  intervals  of  1  mile  or  80  chains,  and 
four  modes  of  perpetuating  corners  are  employed  to  mark 
them, — (1)  Post  for  Section  corner  must  be  4  feet  in  length 
and  4  inches  in  diameter,  firmly  planted  or  driven  into  the 
ground  to  the  depth  of  2  feet,  the  part  projecting  being 
squared  to  receive  the  required  marks.  When  the  corner 
is  common  to  four  sections,  the  post  will  be  set  corner- 
wise  to  the  line,  and  on  each  flattened  surface  will  be  marked 
the  number  of  the  Section  which  it  faces ;  also,  on  the 
Northeast  face,  the  number  of  the  Township  and  Range 
will  be  cut.  All  mile  posts  on  Township  lines  will  have 
as  many  notches  on  the  two  corresponding  edges  as  they 
are  miles  distant  from  the  respective  Township  corners. 
Section  posts  in  the  interior  of  a  Township  will  have  as 
many  notches  on  the  South  and  East  edges  as  they  are 
miles  from  the  South  and  East  boundaries  of  the  Township, 
but  no  notches  on  the  North  and  West  edges.  By  this 
plan  the  corner  can  be  identified  thereafter,  if  the  post  be 
found  lying  upon  the  ground.  All  Section  posts,  whether 
in  the  interior  of  a  Township  or  on  a  Township  line,  must 
be  witnessed   by   four  bearing  trees,  one  in   each   of  the 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  347 

adjoining  Sections.  When  the  requisite  number  of  bear- 
ing trees  cannot  be  found,  the  deficiency  will  be  supplied 
by  substituting  pits  18  inches  square,  and  not  less  than 
12  inches  in  depth.  (2)  Mounds  at  Section  corners  will 
be  41/^  feet  in  diameter  at  their  base,  and  2  feet  in  per- 
pendicular height ;  the  post  being  4  feet  in  length  and  in- 
serted 12  inches  in  the  ground.  The  post  must  be  not 
less  than  3  inches  square,  and  marked  and  witnessed  the 
same  as  the  post  without  the  mound.  At  corners  common 
to  four  Sections,  the  post  in  mound  will  be  set  with  the 
edge  to  the  cardinal  points ;  at  corners  common  to  only 
two  Sections,  the  flattened  sides  of  the  post  will  face  the 
cardinal  points.  (3)  When  stones  are  used  for  Section 
corners  on  Township  lines,  they  will  be  set  with  their 
edges  in  the  direction  of  the  line ;  but  when  standing  for 
interior  Section  corners,  they  will  be  planted  facing  the 
North,  and  should  be  notched  the  same  as  Section  posts 
similarly  situated.  No  marks  except  the  notches  are  re- 
quired, but  they  will  be  witnessed  by  trees  or  pits  as  re- 
quired where  posts  are  used.  A  tree  placed  at  a  Section 
corner  is  marked  the  same  as  a  Section  post. 

Section     451.— QUARTER     SECTION     CORNERS.— 

Quarter  Section  corners  are  established  at  intervals  of  half 
a  mile,  or  40  chains,  except  in  the  North  and  West  tiers  of 
Sections  in  a  Township.  Where  the  Section  lines  exceed 
or  fall  short  of  80  chains,  in  subdividing  these  Sections,  the 
quarter  post  is  established  just  40  chains  from  the  interior 
Section  corner,  throwing  the  excess  or  deficiency  upon  the 
last  half  mile.  The  intervals  between  the  quarter  posts 
and  the  North  and  West  Township  boundaries  will  there- 
fore be  irregular.  Quarter  Section  corners  are  not  required 
to  be  established  on  the  North  boundary  of  the  Northern 
tier  of  Sections  in  a  Township  South  of  and  bordering  on 
a  standard  parallel  or  base  line.  Quarter  Section  corners 
are  perpetuated  in  the  following  manner:  (1)  Posts  at 
quarter  Section  corners  must  be  4  feet  in   length  and  4 


348  BUSINESS  LAWS   FOR   BUSINESS   MEN. 

inches  in  diameter,  and  be  planted  or  driven  into  the  ground 
2  feet;  the  part  projecting  being  flattened  or  squared,  so 
as  to  present  a  smooth  surface  3  inches  in  width.  The 
only  mark  required  on  a  quarter  Section  post  is  the  char- 
acter "^S."  The  corner  must  also  be  witnessed  by  two 
bearing  trees.  (2)  Mounds  at  quarter  Section  corners  will 
be  41/^  feet  in  diameter  at  their  base,  and  2  feet  in  perpen- 
dicular height,  the  post  being  4  feet  in  length  and  inserted 
in  the  ground  12  inches ;  it  will  also  be  marked  and  wit- 
nessed the  same  as  the  post  without  the  mound.  (3)  Stones 
used  for  quarter  Section  corners  must  have  the  fraction 
"14"  cut  upon  the  West  side  of  North  and  South  lines,  and 
on  the  North  side  of  East  and  West  lines,  and  must  be  wit- 
nessed by  two  bearing  trees.  (4)  A  tree,  when  found  in 
place,  should  be  marked  and  witnessed  in  the  same  manner 
as  the  post. 

Section  452.— MEANDER  CORNERS.— At  the  points 
where  Township  or  Section  lines  intersect  large  ponds, 
lakes,  bayous,  or  navigable  rivers,  posts  are  established  at 
the  time  of  running  the  lines,  which  are  called  Meander 
Corners.  Either  of  the  four  modes  described  for  perpetu- 
ating corners  may  be  employed  for  perpetuating  meander 
corners.  (1)  No  marking  is  required  on  meander  posts, 
but  they  must  be  witnessed  by  two  bearing  trees  or  pits. 
They  should  also  be  firmly  inserted  in  the  ground.  (2) 
The  mound  and  post  at  meander  corners  should  be  the 
same  dimensions  as  those  for  the  Section  and  quarter  Sec- 
tion corners.  The  pit  should  be  directly  on  the  line,  and  8 
links  further  from  the  water  than  the  mound.  When  the 
pit  cannot  be  so  located,  its  course  and  distance  from  the 
corner  should  be  stated  in  the  field  book.  (3)  Stones  or 
trees  may  be  employed  to  perpetuate  meander  corners,  and 
when  so  used,  must  be  witnessed  the  same  as  meander  posts. 

Section  453.— GOVERNMENT  LINES  AND  COR- 
NERS   MUST    CONTROL.— As    has    been    said    before, 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  349 

where  the  corners  are  established  by  the  proper  officer  in 
pursuance  of  the  system  of  subdivision  authorized  by  law, 
they  must  be  regarded  as  the  true  corners  which  they  rep- 
resent, even  if  it  is  subsequently  found  that  any  post  or 
corner  is  out  of  line,  or  that  the  intervals  between  posts 
are  unequal  or  incorrect;  for  no  party  has  a  right  to  cor- 
rect such  errors  except  the  general  Government,  and  it 
possesses  the  power  only  while  the  title  to  the  lands  affected 
by  the  change  is  yet  in  the  United  States.  After  the  lands 
have  passed  into  the  hands  of  private  parties,  the  Govern- 
ment lines  and  corners,  as  marked  in  the  field,  must  control 
in  determining  the  boundaries  of  all  legal  subdivisions, 
when  they  can  be  found  and  identified;  and  when  they  are 
missing,  recourse  must  be  had  to  the  official  plats  and  field 
notes  of  the  Government  surveyor. 

Section  454.— RESTORING  LOST  CORNERS.— When 

extinct  lines  or  corners  of  the  public  lands  are  required  to  be 
reestablished,  a  County  Surveyor  or  other  competent  per- 
son is  usually  employed  by  private  parties.  It  is  not  the 
province  of  the  General  Land  Office  to  direct  the  operations 
of  any  but  Government  surveyors  engaged  in  the  public 
service ;  yet  obliterated  boundaries  must  be  restored  in  con- 
formity with  the  laws  and  regulations  under  which  they 
were  originally  established.  Extinct  lines  or  corners  must 
be  restored  to  the  exact  locality  they  originally  occupied,  if 
possible.  Resort  should  first  be  had  to  the  marks  in  the 
field.  The  surveyor  should  first  seek  to  identify  the  missing 
corner  on  the  ground,  by  the  aid  of  the  bearing  trees  or  wit- 
ness mounds,  line  trees,  etc.,  described  in  the  original  field 
notes.  When  two  or  more  witness  trees  or  mounds  can  be 
found,  they  afford  the  best  means  for  restoring  a  missing 
corner  to  its  original  position  that  can  be  had.  If  the  cor- 
ner cannot  be  identified  in  this  manner,  clear  and  unques- 
tionable testimony  as  to  the  locality  it  originally  occupied 
should  be  taken,  if  such  testimony  be  obtainable.  This 
testimony    must    be    had    from    the    lips    of    old    settlers, 


350  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

residents  of  the  neighborhood,  who  may  be  able  to  point  out 
from  their  personal  observation  and  recollection  the  posi- 
tion of  a  stake  or  mound  set  by  the  original  surveyor  at 
the  time  the  line  was  run.  Axmen,  or  chainmen,  who  were 
with  the  Government  surveyor,  may  be  sworn  and  their 
affidavits  taken  as  to  the  original  location  of  missing  cor- 
ners, and  generally,  as  to  their  knowledge  of  the  place 
where  the  Government  surveyor  located  the  line  which  the 
private  surveyor  is  endeavoring  to  retrace.  But  this  sort  of 
evidence  is  always  more  or  less  unreliable,  and  subject  to 
abuse ;  and,  after  all,  the  monuments  placed  on  the  ground 
by  the  Creator,  which  neither  time  nor  man  can  efface  or 
change — mountains,  rivers,  the  ocean  bluff,  ponds  and  lakes, 
and  other  prominent  features  of  the  earth's  surface — these, 
when  they  correspond  with  the  field  notes  of  the  original 
survey,  form  the  best  evidence  of  the  true  location  of  the 
lines  and  corners  established  by  the  Government  surveyor. 

Section     454a.— PERPETUATING     CORNERS.— The 

Legislature  of  1905  passed  a  law  making  it  the  duty  of 
County  Surveyors  to  perpetuate  so  far  as  possible  the 
corners  established  by  the  Government  surveys.  The  law 
provides  that  when  any  County  Surveyor  shall  find  a  Gov- 
ernment corner  marked  in  the  original  survey  by  placing 
charcoal  in  the  ground,  or  by  a  wooden  stake,  earth  mound, 
or  other  perishable  monument,  it  shall  be  his  duty  to  re- 
mark said  corner  by  placing  therein  a  monument  of  heavily 
galvanized  iron  pipe,  or  galvanized  iron  stake,  not  less  than 
two  inches  in  diameter  and  two  feet  long,  or  that  he  may 
use  some  other  material  not  less  in  size  and  equally  im- 
perishable. All  such  monuments  located  in  public  high- 
ways must  be  placed  with  the  top  not  less  than  twelve 
inches  below  the  surface  of  the  ground,  but  when  not 
located  in  public  highways  they  must  be  placed  with  the 
top  six  inches  above  the  surface  of  the  ground.  If  the 
top  of  the  monument  is  placed  above  the  ground,  it  must 
not  be  less  than  four  feet  long,  if  of  metal.    The  surveyor 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  351 

must  note  witness  objects  that  are  within  a  reasonable 
distance  of  any  corner,  and  state  distance  and  course  from 
the  corner,  and  record  his  notes  in  the  County  Recorder's 
office.  The  County  Recorder  is  required  to  keep  a  book  for 
the  purpose,  properly  indexed,  which  shall  be  a  public  rec- 
ord. Boards  of  Supervisors  are  required  to  furnish  all 
necessary  pipes  or  stakes  for  such  monuments,  on  demand, 
at  the  county's  expense.  (Act  of  the  Legislature,  approved 
March  18,  1905.) 

Section         455.— PROPORTIONATE  MEASURE- 

MENTS.— In  retracing  lines,  it  frequently  happens  that  the 
measurements  do  not  agree  with  those  stated  in  the  Gov- 
ernment field  notes.  This  discrepancy  generally  arises 
from  a  difference  in  the  length  of  the  respective  chains 
used,  or  a  want  of  proper  care  in  straightening  and  level- 
ing the  chain,  or  in  sticking  the  pins,  on  the  part  of  one 
set  of  chainmen  or  the  other,  but  is  sometimes  owing  to  an 
error  in  tallying  committed  by  the  Government  chainman. 
When  these  differences  in  measurement  occur,  the  County 
Surveyor  must  in  all  cases  establish  his  corners  at  intervals 
proportionate  to  those  given  in  the  Government  field  notes. 
This  rule  must  be  observed  even  if  the  original  interval 
be  one  or  more  tallies  too  many  or  too  few. 

Section  456.— INSTRUCTIONS  FROM  THE  GEN- 
ERAL LAND  OFFICE.— The  Department  of  the  Interior, 
through  the  General  Land  Office,  has  from  time  to  time 
issued  circular  letters  of  instruction,  stating  the  rules  estab- 
lished by  law  which  must  be  followed  by  County  Surveyors 
and  others  in  retracing  the  lines  of  Government  surveys 
and  relocating  missing  corners.  From  these  letters  of  in- 
struction the  following  rules  have  been  copied,  and  are 
recommended  to  the  careful  study  of  the  owners  of  land 
the  boundaries  of  which  are  in  controversy : — 

(1)  All  corners  of  the  public  surveys  established  by  the 
Government  surveyors  must  stand  as  the  true  corners  they 


352  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

were  intended  to  represent,  and  the  length  of  lines  stated 
in  the  field  notes  of  the  original  survey  must  be  considered 
as  the  true  lengths  thereof. 

(2)  Missing  corners  should  be  restored  to  the  exact  posi- 
tion they  originally  occupied. 

(3)  All  lines  subdividing  a  Section  must  be  straight 
lines  running  through  the  Section  from  the  corner  in  one 
boundary  to  its  corresponding  corner  in  the  opposite  bound- 
ary of  said  Section. 

(4)  Section  and  quarter  Section  corners  as  established 
by  the  Government  survey,  must,  by  law  of  Congress,  stand 
as  the  true  corners. 

(5)  Missing  corners  must  be  reestablished  at  the  iden- 
tical point  where  the  original  posts  were  planted  by  the 
United  States   Deputy   Surveyors. 

(6)  The  legal  presumption  is,  in  the  absence  of  any 
evidence  to  the  contrary,  that  lost  Section  and  quarter 
Section  posts  were  originally  established  at  the  distance 
indicated  in  the  field  notes. 

(7)  Half  quarter  Section  corners  must  be  established 
equidistant  from  the  Section  and  quarter  Section  posts. 

(8)  To  divide  a  Section  into  quarters,  a  right  line  should 
be  run  from  the  quarter  Section  post  in  one  Section  line  to 
the  corresponding  quarter  Section  post  in  the  opposite  Sec- 
tion line,  even  though  one  or  more  of  these  posts  may  have 
been  established  nearer  to  one  Section  corner  than  the  other, 
thereby  giving  to  one  quarter  Section  more  than  160  acres, 
and  to  another  less  than  160  acres. 

(9)  It  is  the  duty  of  the  surveyor  to  reestablish  missing 
posts  in  the  exact  locality  where  they  were  originally 
placed  in  the  Government  survey.  The  proof  of  locality 
first  sought  to  be  obtained  should  be  the  witness  trees, 
or  any  other  means  of  identification  contained  in  the  field 
notes,  and  next,  clear  and  unquestionable  testimony  of  any 
kind.  If  no  bearing  trees,  or  other  evidence  in  the  field 
notes  or  elsewhere,  exist,  by  which  the  locality  of  the 
missing  posts  can  be  identified  or  determined  in  the  field. 


BUSINESS   CONTRACTS   AND   LEGAL.   OBLIGATIONS,  353 

then  the  legal  presumption  is  that  the  missing  Section  or 
quarter  Section  corners  were  originally  established  in  con- 
formity with  the  distances  expressed  in  the  field  notes,  and 
the  surveyor  should  so  reestablish  them. 

(10)  Extinct  quarter  Section  corners,  except  on  frac- 
tional Section  lines,  when  they  cannot  be  identified,  should 
be  reestablished  equidistant  between  the  Section  corners, 
in  a  right  line  between  the  nearest  noted  "line  trees"  each 
side  of  it,  if  there  are  any ;  but^  if  none  are  found,  then  in 
a  right  line  between  the  Section  corners.  Extinct  quarter 
Section  posts,  on  Section  lines  which  close  on  the  North 
and  West  boundaries  of  Townships,  should  be  reestab- 
lished, according  to  the  original  measurement  thereof,  at 
40  chains  from  the  last  interior  Section  corner. 

(11)  Extinct  Section  corners  may  be  reestablished  by 
running  a  right  line  between  the  nearest  noted  "line  tree" 
North  and  South  and  East  and  West  of  the  lost  corner, 
if  there  be  any  such  trees  within  the  distance  of  the  nearest 
quarter  Section  corners ;  but  if  no  "line  tree"  be  found,  then 
between  the  nearest  quarter  Section  or  Section  corners,  and 
at  the  point  of  intersection  of  the  two  lines  thus  run,  estab- 
lish the  Section  corner,  with  new  bearings  to  the  nearest 
and  most  desirable  objects. 

(12)  The  quarter  mile  posts  are  not  established  in  Gov- 
ernment surveys,  but  are,  by  law,  understood  to  be  equi- 
distant from  the  Section  and  quarter  Section  corners,  and 
should  be  so  established  by  the  County  Surveyor. 

(13)  It  may  be  remarked,  that  where  the  measurement 
of  any  Section  line  by  the  County  Surveyor  does  not  cor- 
respond with  the  original  measurement  recorded  in  the 
field  notes,  lost  corners  should  be  reestablished  at  pro- 
portionate distances  from  each  other  between  the  known 
corners. 

Section  457.— MANUAL  OF  UNITED  STATES  SUR- 
VEYING.— If  any  reader  of  this  book  desires  to  acquire 
more  extensive  information  of  the  system  of  United  States 


354  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

surveying,  and  of  the  rules  of  the  General  Land  Office 
regulating  the  retracing  of  Government  lines  and  the  re- 
locating of  lost  or  missing  corners,  he  is  recommended  to 
obtain  a  copy  of  the  "Manual  of  United  States  Surveying," 
by  J.  H.  Hawes,  published  by  J.  B.  Lippincott  Company, 
Philadelphia.  It  is  a  clear  and  comprehensive  treatment 
of  the  subject,  giving  very  full  and  useful  information  upon 
all  matters  connected  with  surveying. 

Section  458.— WHERE  SURVEYOR  SHOULD 
START. — To  retrace  a  line,  a  surveyor  should  start  from 
some  known  corner  called  for  by  the  field  notes  of  the 
original  survey.  He  should  start  from  the  nearest  known 
corner.  When  he  has  found  such  a  corner,  and  has  iden- 
tified it  by  descriptions  in  the  field  notes,  or  by  the  testimony 
of  old  residents  in  the  neighborhood,  it  will  make  no  dif- 
ference whether  the  corner  is  on  the  Township  line,  or  in 
a  Township  north  or  south  of  the  line;  for  if  it  is  a  corner 
established  by  the  original  surveyor,  when  locating  the 
Township  line,  or  subsequently  in  subdividing  a  Town- 
ship, and  is  the  nearest  known  corner  to  the  point  which 
the  private  surveyor  is  endeavoring  to  retrace  or  relocate, 
it  should  be  his  starting  point  in  making  his  survey. 

Section  459.— MONUMENTS  CONTROL  COURSES 
AND  DISTANCES. — It  is  a  rule  of  surveying,  always  to  be 
applied  to  the  retracing  of  Government  lines  and  the  relo- 
cating of  Government  corners,  that  monuments,  natural 
or  artificial,  control  courses  and  distances.  Consequently, 
whether  the  courses  and  distances  correspond  with  the 
field  notes  or  not,  if  the  monuments  called  for  by  the  field 
notes  are  found  on  the  ground,  they  must  control.  It  is 
only  where  no  monuments,  natural  or  artificial,  can  be 
found,  that  the  courses  and  distances  will  control. 

Section  460.— COMPLETION  OF  UNITED  STATES 
SURVEY. — The  Government  survey  of  the  public  lands 
is     made     by     running     and     marking     the    lines     of     the 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  355 

Township  and  Sections,  and  by  marking  the  corners  of  the 
Township,  Sections,  and  quarter  Sections.  It  is  not  nec- 
essary that  a  whole  Township  be  surveyed  at  one  time, 
and  often  different  parts  of  a  Township  are  surveyed  at 
different  times.  But  no  survey  of  any  part  is  complete 
until  the  lines  and  corners  about  that  part  are  run  and 
established  as  required  by  the  statute.  Even  after  a  prin- 
cipal meridian  and  base  line  have  been  established,  and  the 
exterior  lines  of  the  Township  have  been  surveyed,  neither 
the  Sections  nor  their  subdivisions  can  be  said  to  have 
any  existence  until  the  Township  is  subdivided  into  Sec- 
tions and  quarter  Sections  by  an  approved  survey.  The 
lines  are  not  ascertained  by  the  survey,  but  they  are  created 
by  it. 

Section  461.— APPLICATION  TO  PURCHASE 
SCHOOL  LAND.— The  law  of  California  does  not  con- 
template a  sale  of  school  land  by  the  State  until  the  title 
to  the  16th  and  36th  Sections  has  vested  in  the  State,  and 
the  title  to  these  Sections  does  not  vest  in  the  State  until 
the  plat  of  the  survey  is  approved  by  the  United  States 
Surveyor-General.  An  application  to  purchase  a  16th  or 
36th  Section  of  land,  filed  before  the  plat  of  the  survey  of 
the  Township  is  approved  by  the  United  States  Surveyor- 
General,  is  unauthorized  and  void. 

Spaulding's  Table  for  Measurement  of  Logs 

Section  461a.— LEGAL  STANDARD  OF  LOG  MEAS- 
UREMENT.—The  State  has  by  law  adopted  the  table 
known  as  Spaulding's  Table  for  the  Measurement  of  Logs, 
as  the  legal  standard  of  measurement  in  California.  The 
law  passed  by  the  Legislature  (Statutes  of  1878)  reads  as 
follows :  "There  shall  be  but  one  standard  for  the  measure- 
ment of  logs  throughout  the  State.  The  following  table, 
known  as  Spaulding's  Table  for  the  Measurement  of  Logs, 
is  hereby  made  the  standard  and  table  for  the  measurement 
of  logs  throughout  the  State.    For  the  measurement  of  logs 


356 


BUSINESS  liAWS  FOR  BUSINESS   MEN. 


of  any  greater  length  than  indicated  in  the  table  set  forth 
in  Section  2  of  this  Act,  the  computation  shall  be  made 
in  accordance  with  table.  All  logs  shall  be  measured  at  the 
small  end  and  inside  the  bark,  and  the  contents  computed 
according  to  table.  Allowance  shall  be  made  for  rot,  shake, 
or  other  defect  in  logs  measured  by  this  scale  and  under 
the  provisions  of  this  Act,  so  as  to  make  the  survey  express 
the  actual  quantity  of  merchantable  lumber  in  each  log." 

The  Spaulding  Table  for  the  Measurement  of  Logs  is  as 
follows : — 


Length 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

infect. 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

12... 

38 

47 

58 

71 

86 

103 

121 

141 

162 

184 

207 

13... 

41 

51 

62 

76 

93 

111 

131 

152 

175 

199 

224 

14... 

44 

55 

67 

82 

100 

120 

141 

164 

189 

214 

241 

15... 

47 

59 

72 

88 

107 

128 

151 

176 

202 

230 

258 

16... 

50 

63 

77 

94 

114 

137 

161 

188 

216 

245 

276 

17. .  . 

53 

67 

82 

100 

121 

145 

171 

199 

229 

260 

293 

18... 

57 

70 

87 

106 

129 

154 

181 

211 

243 

276 

310 

19... 

60 

74 

91 

112 

136 

163 

191 

223 

256 

291 

327 

20... 

63 

78 

96 

118 

143 

171 

201 

235 

270 

306  345 

21... 

.  66 

82 

101 

124 

150 

180 

211 

246 

283 

322 

362 

22... 

.  69 

86 

106 

130 

157 

188 

221 

258 

297 

337 

379 

23... 

.  72 

90 

111 

136 

164 

197 

231 

270 

310 

352 

396 

24... 

.  76 

94 

116 

142 

172 

206 

242 

282 

324 

368 

414 

Length 
in  feet. 


Diam. 
21 


Diam. 
22 


Diam. 
23 


Diam. 
24 


Diam.  jDiam. 
25         26 


Diam. 
27 


Diam.  >  Diam. 
28  I  29 


Diam. 
30 


Diam. 
31 


12.. 

13.. 
14.. 
15.. 
16.. 
17.. 
18.. 
19.. 
20.. 
21.. 
22.. 
23.. 
24.. 


231 
250 
269 

288 
308 
327 


256 
277 
298 
320 
341 
362 
346'  384 
365  405 
3851  426 
404  448 
423'  469 
442  490 
462  512 


282 
305 
329 
352 
376 
399 
423 
446 


309 
334 
360 

387 
412 
437 
463 
489 


470  515 
493;  540 
517j  566 
540|  591 
5641  618 


337  366 

365  396; 

393  427 

421  457 

449  488 

477  518 

505  549 

533  579 

561;  610 

589  640 

617,  671 

645'  701 

674  732 


396  427'  459 

429  462  497 

462  498  535 

495  533  573 

528  569  612 

561  604  650 

594  640  688 

627;  676  726 


660 
693 
726 
759 
792 


711;  765 

747,  803 
782.  841 
818'  879 
854^  918 


492 
533 
574 
615 
656 
697 
738 
779 
820 


526 
569 
613 
657 
701 
745 
789 
832 
876 


8611  920 
902  964 
9431008 
984il052 


BUSINESS   CONTRACTS  AND   LEGAL.   OBLIGATIONS. 


357 


Length 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

Diam. 

in  feet. 

32 

33 

34 

35 

36 

37 

38 

39 

40 

41 

42 

12. . . . 

561 

597 

634 

673 

713 

755 

798:  843]  889l  936 

984 

13.... 

607 

646 

686 

729 

772 

817 

864  913  963  10141066 

14. .  .  . 

654i  696 

739|  785 

831 

880 

9311  983  1037 

1092 

1148 

15.... 

7011  746 

792 

841 

891 

943 

9971053  1111 

11701230 

16. .  .  . 

748{  796 

845 

897 

950 

1006 

1064  1124  1185 

1248 

1312 

17. . . . 

794  845 

898i  953,1010 

1069  113011941259 

13261 1394 

18. . . . 

841i  895 

951,1009  1069  1132  1197  1264  1333 

140411476 

19.... 

888  945 

1003  1065  1128  1195  1263  1334  1407 

1482  1558 

20. .  .  . 

935  995 

10561121 

1188  1258133014051481 

1560 

1640 

21.... 

981  1044 

1109  1177 

1247113211397  14751555 

1638 

1722 

22. .  .  . 

10281094 

1162  1233!  1307  1384  1463  1545  1629 

1716 

1804 

23. . .  . 

1075,1144 

1215,128911366  1447  1529  1615  1703 

1794 

1886 

24. .  . . 

1122,1194 

1268;  1346i  1426  1510  1596: 1686!  1778 

1872 

1968 

Length 

Diam.  Diam. 

Diam.  Diam. 

1    1    :    ' 

Diam. 'Diam.  Diam.  Diam.  Diam.  Diam. 

Diam. 

in  feet. 

43  ,  44 

45    46 

47  r  48    49  J  60    51    52 

53 

12.... 

1033  1086  1134  1186  1239  1293  1348  1404  146lll519 

1578 

13. .  . . 

1119  1176  1228  12841342  1400  14601521  1582  1645  1709 

14. . .  . 

1205,1267  1323  1383  1445  1508  1572  1638  1704  1772  1841 

15.... 

1291 

1357  1417  1482  1548  1616  1685  1755  1826  1898  1972 

16. .  .  . 

1377 

1448  1512  1581  1652  1724'  1797  1872 1948  2025  2104 

17. . . . 

1463 

1538  1606  1680  1755  183l|  1909  1989  2069  2151  2235 

18. . . . 

1549 

1629  17011 1779  1858  1939,2022  2106  2191  22782367 

19.... 

163511719  1795;  1877  1961 

2047,21342223  2313  2405  2498 

20. . . . 

1721|  1810  1890  1976  2065 

2155  2246  2340  2435  2531  2630 

21.... 

1807  19001984  2075  2168 

2262  2385  2457  2556  2657  2761 

22. . . . 

1893  19912079  2174  2271 

2370  2470  2574  2678  2784  2893 

23. . . . 

1979  20812173  2273  2374 

2478  2582  2691  2800  291 1  3024 

24. .  . . 

I2O66 

2172 

2268i2372 

,2478 

2586  2696  2808  2922303813156 

Length 
in  feet. 


Diam.  Diam.  Diam. 
54    I     55     i     56 


Diam.  Diam. 
57     I     58 


Diam .  Diam . '  Diam .  Diam .  Diam .  Diam . 
59         60     I     61     i     62         63         64 


12.. 
13.. 
14.. 
15.. 
16.. 
17.. 
18.. 
19.. 
20.. 
21.. 
22.. 
23.. 
24.. 


1638  1700  1763 
1774  1841  1909 
1911  1983  2056 
2047  2125  2203 
2184  2266 
2320  2408 
2457  2550 
2593  2691 
2730  2833 
2866  2974 
30033116 
3139,3258 
3276  3400 


1827  1893 
1979  2050 
2131  2208 
2283  2366 


2350 
2497 
2644 
2791 
2938 
3085 
3232 
3379 
3526 


2436 
2588 
2740 
2892 
3045 
3197 
3349 
3501 
3654 


2524 
2681 
2839 


19601 
2123 
2286, 
2450 
2613 
2776 
2940 


2028  2098 
2197  2272 
2366  2447 
2535  2622 
2704  2797 
2873  2972 
3042  3147 


2997,3103 
3155  3266 
3312  3429 
3470  3592 
3628  3756 
37863920 


3211 
3380 
3549 
3718 
3887 
4056 


332  li 
3496, 
3671' 
3846 
4021 
4196 


21692241 
2349  2427: 
2530  2614 
2711:2801 
2892*2988 
3072  3174 
3253  3361 
134343548 
3615^3735 
37953921 
3976!4108 
4157|4295 
43384482 


2315 
2507 
2700 
2893 
3086 
3279 
3472 
3665 
3858 
4051 
4244 
14437 
4630 


358 


BUSINESS   LAWS  FOR  BUSINESS  MEN. 


Length 
in  feet. 


Diam. 
65 


Diam.  Diam.  Diam. 
66    1    67    I     68 


Diam. 
69 


Diam.  'Diam. 

70    I     71 


Diam. 

72 


Diam.  Diam. 
73         74 


Diam. 
76 


12.. 
13.. 
14.. 
15.. 
16.. 
17.. 
18.. 
19.. 
20.. 
21.. 
22.. 
23.. 
24.. 


2390 
2589 
2789 
2987| 
3186 
3385 
3585 
3784 
3983 
4182 
4381 
4580 
4780 


24672545 
267212757 
28781 2969 
30833181 
3289  3393 
3494  3605 
3700  3817 
39064029 
41114241' 
43164453 
4522  4665 
47284877 
4934  5090 


2625 
2843^ 
30621 
3281j 
3500 
3718 
3937 
4156 
4375 
4593 
4812 
5031 
5250 


2706 
2931 
3157 
3382 


2789 
3021 
3253 
3486 


2874 
3113 
3353 
3592 


2960 
3206 
3453 
3700 


3608  3718 
3833'3951 
4059|4183 
42844415 
4510  4648' 
4735  4880 
496l'5113 
5186  5345 
5412  5578 


3832  3946 
4071*4193 
43114440 
4550;4686 
47904933 
50295180 
52695426 
5508  5673 
5748:5920 


304713135  3224 
33013396  3492 
3555  3657,3761 
3809  3919  4030 
4062  4180' 4298 
4316  444ll4567 
4570  470214836 
482449645104 
5078  5225  5372 


Length 
in  feet. 


12., 
13.. 
14.. 
15.. 
16.. 
17., 
18., 
19., 
20. 


Diam . :  Diam .  i  Diam . 

76    I     77     I     78 


33143405 
3590  3688 
38663972 
4142  4256 


4418 
4694 
4970 
5246 
5522 


4540 
4823 
5107 
5391 
5675 


3497 
3788 
4080 
4371 
4663 
4954 
5245 
5537 
5829 


Diam. 
79 


3590 
3889 
4188 
4487 
4786 
5085 
5385 
5684 
5983 


Diam. 
80 


3684 

3991 
4298 
4605 
4912 
5219 
5526 
5833 
6140 


Diam.  Diam. 
81  1  82 


3779 
4094 
4408' 
4723 
5038 
5353 
5668| 
5983| 
6298 


3874 
4196 
4519 


Diam, 
83 


Diam. 
84 


Diam. 
85 


3970  4067 
43014406 
463114745' 
4842  49621 5084; 
51655293  5423, 
5488  5624' 5762 
58115955'6101' 
6133  628216440 
6456  6616  6778 


Diam 
86 


4165  4264 
4512  4619 


4859 
5206 
5553 
5900 
6247 
6594 
6941 


4974 
5330 
5685 
6040 
6396 
6751 
7106 


Length 
in  feet. 


Diam. 
87 


12. 
13. 
14, 
15, 
16, 


14364 

14727 
,5091 
'5455 
^5818 


Diam. 


4465 

4837 
5209 
5581 
5953 


Diam.  Diam.  Diam.  Diam. 'Diam. 
89         90         91     i     92     j     93 


Diam.  Diam. 
94         95 


Diam. 
96 


17 '6182|6325| 

18 16546  6697 

19 6909  7069 

20 7273  7441 


4566  4668 
4946  5057 
5327  5446 
5707  5835 
6088  6224 
6468  6613 
6849  7002 
7229  7391 
76107780 


4771 
5168 
5566 
5964 
6361 
6759 
7156 
7554 
7951 


4875 
5281 
5687 
6094 
6500 
6906 
7312 
7791 
8125 


4980  5085 
5395  5508 
58105932 
62256356 
6640  6780 
7055  7203 
74707627 
7885  8051 1 
8300  8475 


5192  5300 
56245741 
60576183 
6490  6625 
6922  7066 
7355  7508 
7788  7950 
8220  8391. 
865318833 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  359 

Section     461b.— EXPLANATION     OF    TABLE.— The 

length  of  any  log  in  feet  will  be  found  in  the  left-hand 
column  of  the  table,  and  the  diameter  at  the  top  of  the  page. 

To  find  the  number  of  feet  of  square-edged  boards  which 
a  log  will  produce  when  sawed :  Take  the  length  of  feet  in 
left-hand  column  of  the  table,  and  its  diameter  in  inches  at 
the  top  of  the  page ;  trace  the  two  columns  of  figures  until 
they  meet,  and  you  have  the  required  amount. 

(A  log  which  is  18  feet  long  and  21  inches  in  diameter 
gives  at  the  right  of  the  length,  and  directly  under  the  diam- 
eter, 346  feet ;  and  one  23  feet  long  and  18  inches  in  diam- 
eter, gives  310  feet.) 

Logs  longer  than  are  given  in  this  table  can  be  easily 
measured  by  doubling  any  given  length ;  for  example,  to 
find  the  number  of  feet,  board  measure,  contained  in  a  log 
28  feet  long  by  19  inches  in  diameter,  double  the  amount 
contained  in  a  log  14  feet  long,  19  inches  in  diameter,  and 
you  have  the  answer — 428  feet.  For  a  log  42  feet  long,  19 
inches  diameter,  multiply  the  amount  contained  in  the  table 
in  a  log  14  feet  long  by  3,  and  you  have  the  amount;  and 
so  on  to  any  length  or  size. 

Each  size  log  has  been  scaled  so  as  to  make  all  that  can 
be  practically  sawed  out  of  it,  if  economically  sawed,  each 
log  to  be  measured  at  the  top  or  small  end,  inside  of  the 
bark,  and,  if  not  round,  to  be  measured  two  ways,  at  right 
angles,  and  the  difference  taken  for  the  diameter.  Where 
there  are  any  known  defects  the  amount  deducted  should 
be  agreed  upon  by  the  buyer  and  seller,  and  no  fraction 
of  an  inch  to  be  taken  into  the  measurement. 


Sections  Omitted 

Sections  462  to  551,  inclusive. — (Sections  462  to  551,  in- 
clusive, of  former  editions,  are  omitted  from  the  Eighth 
Edition ;  and  other  subjects  of  greater  value  and  more  gen- 
eral interest  have  been  added.  The  subject  here  omitted 
was  "Division  Fences.") 


360  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Sections  552  to  595,  inclusive. — (Sections  552  to  595,  in- 
clusive, of  former  editions,  are  omitted  from  the  Eighth 
Edition;  and  other  subjects  of  greater  value  and  more  gen- 
eral interest  have  been  added.  The  subject  here  omitted 
was  "Rights  and  Liabilities  of  Professional  Men.") 

Searchers  of  Records 

Section  596.— ABSTRACTS  OF  TITLE.— An  abstract 
of  title  is  a  condensed  history  of  the  title  to  the  land, 
consisting  of  a  synopsis  or  summary  of  the  material  por- 
tions of  all  the  conveyances  of  record,  of  whatever  kind 
or  nature,  which  in  any  manner  affect  the  land,  or  any 
estate  or  interest  in  the  land,  together  with  a  statement 
of  all  liens,  charges,  or  liabilities  to  which  the  property 
may  be  subject,  and  of  which  it  is  in  any  way  material  for 
purchasers  to  be  apprised.  The  object  of  the  abstract  is 
to  enable  the  purchaser,  or  his  attorney,  to  pass  more 
readily  on  the  sufficiency  of  the  title.  Therefore,  a  com- 
plete abstract  should  show  whatever  appears  of  record 
which  concerns  the  sources  of  the  title  and  its  present 
condition.  The  descent  and  line  of  the  title  should  be 
clearly  traced  out,  and  all  encumbrances  and  liens  of  every 
sort,  and  all  adverse  claims,  and  the  material  parts  of  all 
patents,  deeds,  wills,  judicial  proceedings,  and  other  records 
or  documents  which  touch  the  title. 

Section  597.— SEARCHERS  OF  RECORD.— From  the 

necessity  of  having  an  abstract  of  record  of  the  title  to 
land,  and  the  volume  and  extent  of  the  records  themselves, 
has  grown  that  class  of  expert  searchers  known  as  ab- 
stracters, or  searchers  of  record,  whose  business  it  is  to 
prepare  in  a  condensed  and  convenient  form  the  data  from 
which  it  can  be  determined  whether  the  title  is  good  or 
bad,  or  free  from  encumbrance,  and  if  encumbered  at  all, 
the  character  of  the  encumbrance.  So  important  is  their 
work,  and  so  much  depends  upon  the  accuracy  and  fidelity 
of  the  abstracts  they  furnish,  that  it  is  to  be  expected  by 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  361 

those  who  engage  in  the  business  of  furnishing  abstracts 
that  any  errors  or  omissions  resulting  in  damages  will  incur 
a  liability  on  their  part  to  their  patrons. 

Section  598.— LIABILITY  OF  SEARCHERS  OF 
RECORD. — One  who  holds  himself  out  to  the  world  as 
an  examiner  of  titles,  and  who  undertakes  to  furnish  cor- 
rect abstracts  of  title,  is  bound  to  exercise  skill  and  care 
in  making  the  examination,  and  in  preparing  the  abstract, 
and  is  liable  in  damages  for  a  failure  to  exercise  that  duty. 
Persons  engaged  in  the  business  of  making  abstracts  of 
title  occupy  a  relation  of  confidence  towards  those  em- 
ploying them,  which  is  second  only  in  the  sacredness  of 
its  nature  to  the  relation  which  a  lawyer  sustains  to  his 
client.  Searchers  of  record  consult  the  evidences  of  own- 
ership, and  become  familiar  with  the  chains  and  histories 
of  title.  They  handle  private  title  papers,  and  become 
aware  of  whatever  weaknesses  or  defects  may  exist  in  the 
legal  proceedings  through  which  the  ownership  of  real 
property  is  secured.  And  the  courts  have  said,  that  they 
should  be  held  to  a  strict  responsibility  in  the  exercise 
of  the  trust  and  confidence  which  are  necessarily  reposed 
in  them. 

Section  599.— TO  WHOM  LIABLE.— The  liability  of 
a  searcher  of  records  for  want  of  skill  or  ordinary  care  and 
diligence  is  only  to  the  party  employing  him.  An  action 
for  damages  for  errors  or  omissions  in  an  abstract  of  title 
cannot  be  sustained  by  a  third  person  acting  upon  the 
faith  of  the  correctness  of  the  abstract,  as  there  is  no  con- 
tract between  him  and  the  abstracter.  The  abstracter 
knows  that  his  records  are  to  be  seen,  and  titles  to  be 
made  in  reliance  upon  them,  but  he  is  not  bound  to  know 
that  his  certificate  is  for  the  use  or  reliance  of  any  but 
the  person  who  receives  it,  nor  can  it  be  assumed  that  he 
gives  it  for  any  other  use.  He  contracts  with  the  person 
who  requests  and  pays  for  it,  to  give  a  certificate  which 
shall  state   the   facts ;  but  he  enters   into  no  relation  of 


362  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

contract  or  duty  in  respect  to  it  with  any  other  person; 
and,  if  another  relies  upon  it  to  his  injury,  he  cannot  recover 
damages  against  the  abstracter,  because  the  latter  assumed 
no  duty  for  his  protection.  A  searcher  of  records  is  liable 
for  his  negligence  only  to  the  person  who  requests  and 
pays  for  the  certificate  of  search.  He  is  not  liable  to  the 
grantee  of  the  person  who  employed  him,  as  there  was  no 
contract  between  them.  A  searcher  of  records,  employed 
by  the  owner  to  prepare  an  abstract  of  title  for  the  purpose 
of  procuring  a  loan,  is  not  liable  in  damages  to  the  lender, 
for  a  loss  caused  by  a  mistake  in  the  abstract,  there  being 
no  contract  between  him  and  the  lender.  It  is  a  general 
rule  that  a  searcher  of  records  is  liable  for  damages,  because 
of  his  negligence  or  mistake,  only  to  his  immediate  em- 
ployer, and  not  to  the  latter's  assigns,  vendees,  or  devisees, 
nor  to  any  third  person  between  whom  and  himself  there 
is  no  contract  relation. 

Section       600.— LIABILITY       FOR       MISTAKE.— A 

searcher  of  records,  giving  a  certificate  of  title,  is  liable 
to  his  employer  for  any  mistake  arising  from  want  of  due 
care  or  diligence,  or  from  ignorance  of  his  business. 

Section  601.— LIABILITY  FOR  OMITTING  EN- 
CUMBRANCE.— ^If  a  searcher  of  records  undertakes  to 
furnish  a  purchaser  of  land  with  a  full  abstract  of  title, 
he  is  liable  in  damages  for  his  negligence  in  carelessly 
omitting  from  the  abstract  any  mention  of  a  particular 
encumbrance,  by  which  the  purchaser  is  put  to  additional 
expense  to  perfect  his  title. 

Section  602.— MARGINAL  REFERENCE  IN  REC- 
ORD BOOK. — When  a  searcher  of  records  undertakes 
to  make  a  complete  abstract  of  title,  he  takes  the  obligation 
upon  himself  to  make  a  full  and  true  search  and  examina- 
tion of  all  the  records  relating  to  the  land,  and  to  note  in 
the  abstract  accurately  every  transfer,  conveyance,  or  other 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS,  363 

instrument  of  record  in  any  way  affecting  the  title.  He 
is  not  required  to  give  any  opinion  as  to  the  legal  effect 
of  any  of  the  instruments,  and  just  how  full  a  description 
of  them  he  shall  give  is,  to  a  certain  extent,  a  matter 
for  himself  to  decide;  but  in  so  far  as  he  assumes  to 
describe  the  recorded  instruments,  he  is  required  to  make 
his  descriptions  accurate.  The  record,  and  not  a  mar- 
ginal reference  to  it  by  the  Recorder,  nor  an  index  ref- 
erence to  the  instrument,  is  what  determines  the  char- 
acter and  legal  eft'ect  of  the  instrument ;  and  the  duty  of 
the  searcher  of  records  is  not  fulfilled  by  merely  assuming 
the  accuracy  of  a  marginal  reference,  without  examining 
the  instrument  itself.  In  failing  to  examine  the  record 
of  the  instrument  itself,  the  searcher  is  guilty  of  negli- 
gence. So,  in  a  case  where  a  partial  release  of  a  mortgage 
was  recorded,  and  a  register  of  deeds,  in  his  reference  to  it 
on  the  margin  of  the  record  of  the  mortgage  erroneously 
made  the  entry  "Satisfied"  (with  a  reference  to  the  book 
and  page  where  the  release  was  recorded),  when  in  fact 
it  should  have  been  "Partially  satisfied,"  and  the  searcher, 
in  making  up  the  abstract,  relied  upon  this  marginal  entry 
entirely,  supposing  it  to  be  correct,  and  did  not  examine 
the  contents  of  the  instrument  of  release  itself,  and  the 
party  procuring  the  abstract  was  afterwards  compelled  to 
pay  the  mortgage ;  it  was  held  by  the  court  that  the  searcher 
was  guilty  of  negligence,  and  was  liable  for  whatever  the 
party  had  been  compelled  to  pay. 

Section  603.— OMITTING  JUDGMENT  AND  SALE. 

— If  a  searcher  of  records,  employed  by  a  purchaser  to 
make  an  abstract,  omits  to  note  the  fact  of  a  judgment  and 
sale  of  the  land  for  taxes,  of  which  the  purchaser  is  igno- 
rant until  the  time  for  redemption  has  expired,  whereby 
he  is  caused  to  pay  out  money  to  remove  the  cloud  from 
his  title,  the  abstracter  is  liable  in  damages  to  the  purchaser 
for  the  sum  paid  out  by  him. 


364  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

Section  604.— INCORRECT  REPORT  OF  QUAN- 
TITY OF  LAND  CONVEYED.— If  a  searcher  of  records 
incorrectly  reports  in  the  abstract  the  quantity  of  land 
previously  conveyed,  he  is  liable  in  damages  to  the  person 
who  employed  him  and  relied  upon  the  information  in 
purchasing  the  land. 

Section      605.— MEASURE       OF       DAMAGES.— The 

damages  suffered  must  be  actual  damages.  The  law  will  • 
not  compel  a  searcher  of  records,  even  though  he  has  been 
guilty  of  inexcusable  negligence  or  ignorance,  in  prepar- 
ing the  abstract,  to  pay  any  damages  by  way  of  punish- 
ment. The  person  who  employed  him  is  entitled  to  the 
actual  money  loss,  by  reason  of  the  negligent  act  or  omis- 
sion, and  that  is  all. 

Section  606.— WHEN  SUIT  FOR  DAMAGES  MUST 
BE  COMMENCED.— In  California,  a  suit  against  a 
searcher  of  records  for  damages  must  be  commenced 
within  two  years  after  the  delivery  of  the  defective  abstract, 
or  it  is  barred  by  the  statute  of  limitations. 

Section  607.— SALE  OF  GOOD  WILL  OF  AB- 
STRACTING BUSINESS.— Section  1674  of  the  Civil 
Code  of  California,  providing  that  one  who  sells  the  good 
will  of  a  "business"  may  agree  with  the  buyer  to  refrain 
from  carrying  on  a  similar  "business,"  is  broad  enough  to 
include,  and  does  include,  the  business  of  abstracting. 

Notary  Public 

Section  608.— DUTIES  OF  NOTARY.— The  duties  of 
a  Notary  Public  are  prescribed  by  law,  and  are  varied  and 
important.  In  business  affairs,  the  taking  of  acknowledg-  > 
ments  to  deeds,  mortgages,  leases,  and  other  instruments, 
constitutes  the  greater  and  most  important  part  of  a 
Notary's  work.  His  duties,  however,  extend  to  a  number 
of  other  matters.     He    is-   required,   when    requested,   to 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  365 

demand  acceptance  and  payment  of  foreign,  domestic,  and 
inland  bills  of  exchange,  or  promissory  notes,  and  protest 
the  same  for  non-acceptance  and  non-payment ;  he  may  take 
acknowledgment  or  proof  of  powers  of  attorneys,  mort- 
gages, deeds,  grants,  transfers,  and  other  instruments  of 
writing  executed  by  any  person ;  he  may  take  depositions 
and  affidavits,  and  administer  oaths,  to  be  used  before  any 
court,  judge,  officer,  or  board  in  this  State.  He  is  required 
to  keep  a  record  of  all  official  acts  done  by  him ;  to  keep  a 
record  of  the  parties  to  every  instrument  acknowledged  or 
proved  before  him,  with  the  date  and  character  of  the  in- 
strument ;  and  when  requested,  and  upon  payment  of  his 
fees,  he  must  make  and  give  a  certified  copy  of  any  record 
in  his  office. 

Section  609.— BOND  OF  NOTARY.— Every  Notary 
in  California  must  give  an  official  bond  in  the  sum  of 
$5,000,  which  must  be  approved  by  the  Judge  of  the  Su- 
perior Court,  of  his  county,  and  recorded  as  other  official 
bonds  of  county  officers. 

Section    610.— LIABILITY    OF    NOTARY.— The    law 

provides  that  for  the  official  misconduct  or  neglect  of  a 
Notary  Public,  he  and  the  sureties  on  his  official  bond  are 
liable  to  the  parties  injured  for  all  the  damages  sustained. 
Political  Code,  Section  801. 

Section  611.— WHAT  ACTS  COVERED  BY  OF- 
FICIAL BOND.— The  condition  of  the  bond  of  a  Notary 
Public  being,  that  he  will  "well  and  truly  perform  and 
discharge  the  duties  of  a  Notary  Public  according  to  law," 
this  embraces  every  act  which  he  is  authorized  or  required 
by  law  to  do  in  virtue  of  his  office.  By  accepting  the  office, 
a  Notary  contracts  with  those  who  employ  him  that  he 
will  perform  the  duties  of  the  office  with  integrity,  dili- 
gence, and  skill.  He  gives  his  bond  to  indemnify  those 
who  shall  suffer  by  the  unfaithful  or  unskilful  performance 


366  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

of  his  duty.  Before  a  Notary  and  his  bondsmen  can  be 
held  liable  for  damages,  it  is  necessary  to  determine 
whether  the  act  done  or  not  done  was  or  not  authorized 
by  law,  was  or  not  incumbent  upon  him,  was  or  not  re- 
quired of  him,  whether  he  was  directed  to  do  it,  whether 
he  has  failed  to  discharge  the  duty,  and  whether  injury 
has  been  sustained.  Where  a  Notary  does  a  thing  which 
the  law  does  not  authorize  him  to  do,  although  he  does 
it  in  his  capacity  of  Notary  Public,  his  bondsmen  are  not 
responsible  for  his  act.  Notaries  and  their  sureties  are 
liable  only  to  the  persons  who  have  employed  the  Notary, 
and  are  only  liable  to  those  who  suffer  injury  on  account 
of  the  Notary's  failure  to  perform  the  duty  incumbent  upon 
him  or  required  by  law. 

Section  612.— LIABILITY  OF  SURETIES  ON 
OFFICIAL  BOND.— The  surety  on  a  Notary's  official 
bond  is  only  bound  for  such  acts  of  his  as  the  law  author- 
izes or  requires  him  to  do  in  his  official  capacity.  By 
signing  the  bond,  the  surety  tells  all  who  may  need  the 
services  of  a  Notary :  "You  can  go  with  security  to  this 
Notary ;  I  assure  you  that  he  is  a  competent  officer ;  that 
he  will  well  and  faithfully  discharge  and  perform  all  the 
duties  imposed  upon  him  by  law ;  and  if  he  fails  in  doing 
so,  I  will  be  responsible  to  you  for  losses  sustained."  If, 
therefore,  a  person  calls  on  a  Notary  for  the  performance 
of  a  duty  incumbent  upon  him,  and  the  Notary  fails  or 
neglects  his  duty,  and  injury  is  suffered,  the  surety  is 
liable  to  the  party  injured.  A  surety  cannot  be  held  liable 
because  the  Notary  has  done  acts  which  the  law  did  not 
authorize  or  compel  him  to  perform,  and  which  were  there- 
fore not  incumbent  upon  him.  The  sureties  upon,  the  offi- 
cial bond  of  a  Notary  Public  are  only  liable  for  damages 
occasioned  by  his  negligence  or  misconduct  in  the  line  of 
his  official  duty. 

Section  613.— PREMATURE  PROTEST  OF  PROM- 
ISSORY  NOTE. — In   case  of   a   promissory   note   falling 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  367 

due,  according  to  its  face,  upon  Sunday,  a  Notary  cannot 
present  it  for  payment,  nor  make  protest,  on  the  preceding 
Saturday.  The  following  Monday  is  the  proper  date  for 
presentment  and  protest,  unless  that  is  also  a  legal  holi- 
day, when  the  next  would  be  the  proper  day.  Sunday, 
not  being  a  legal  day  for  exacting  payment,  cannot  be 
computed,  except  when  it  is  an  intermediate  day.  To  do 
so  would  make  another  contract  for  the  parties,  and  by 
requiring  payment  on  Saturday  would  compel  the  obliga- 
tion to  be  met  before  the  contract  time  for  its  performance 
had  arrived.  The  act  of  a  Notary  in  wrongfully  protesting 
a  promissory  note  before  it  is  due  gives  a  right  of  action 
against  him  for  damages,  and  against  his  bondsmen,  in 
favor  of  the  injured  party.  For  the  Notary  is  presumed 
to  know  the  wrongful  character  of  the  act,  and  that,  in 
the  trading  community,  the  protest  of  a  note  is  likely  to 
impair  the  maker's  credit.  If  lawfully  protested,  the  maker 
cannot  complain;  but  he  can  complain,  and  justly  so,  if 
presentment  and  protest  are  made  prematurely,  before  the 
law  authorizes  the  acts. 

Section  614.— FALSE  CERTIFICATE  TO  AC- 
KNOWLEDGMENT.—The  sureties  on  the  official  bond 
of  a  Notary  are  liable  for  the  full  amount  of  a  mortgage 
purchased  in  reliance  on  the  genuineness  of  the  Notary's 
certificate  of  acknowledgment,  where  the  certificate  is  in 
fact  false  and  the  mortgage  a  forgery,  and  where  the  pur- 
ported maker  was  solvent  and  able  to  pay  the  mortgage 
debt.  When  a  Notary  certifies  that  the  mortgagor  duly 
acknowledged  the  execution  of  a  mortgage,  which  in  fact 
is  a  forgery,  the  measure  of  damages,  in  a  suit  against  the 
Notary  or  his  sureties,  brought  by  one  who  has  parted 
with  value  on  the  face  of  such  certificate,  is  the  amount 
which  would  be  the  value  of  the  mortgage  if  genuine.  The 
value  of  the  mortgage  depends  not  merely  upon  the  value 
of  the  mortgaged  property,  but  also  on  the  solvency  of 
the  mortgagor.  When  it  appears,  in  such  a  suit  for  damages, 


368  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

that  the  plaintiff,  had  the  mortgage  been  genuine, 
would  have  been  able  to  collect  the  whole  amount  named 
therein,  he  is  entitled  to  recover  that  amount  from  the  No- 
tary or  his  sureties,  without  regard  to  the  value  of  the  mort- 
gaged property  or  the  interest  of  the  mortgagor  in  the 
property.  If  it  should  appear  that  the  mortgage,  if  valid, 
could  not  be  collected  and  would  not  be  worth  anything, 
then  the  plaintiff  would  not  be  entitled  to  damages,  because 
it  would  not  be  shown  that  he  had  suffered  any  injury. 
But  whatever  value  was  shown,  if  the  mortgage  were  valid, 
could  be  recovered  against  the  Notary  and  his  sureties. 

Section  615.— NOTARY  CANNOT  AMEND  CER- 
TIFICATE.— When  an  acknowledgment  has  been  made, 
before  a  Notary,  the  party  making  it  has  done  all  that  the 
law  requires  to  make  the  instrument  his  act  and  deed. 
The  embodiment  of  the  fact  of  acknowledgment,  in  the 
form  of  the  certificate  prescribed  by  law,  devolves  upon 
the  Notary,  and  not  upon  the  party  making  it.  And  if 
the  Notary  blunders  in  certifying  to  an  acknowledgment 
duly  made,  or  if  he  makes  a  defective  or  false  certificate, 
he  cannot  alter  or  amend  it ;  because,  after  taking  the  ac- 
knowledgment and  delivering  the  return,  his  functions 
cease,  and  he  is  discharged  from  all  further  authority. 
The  Superior  Court,  and  not  the  Notary,  has  power  to 
correct  a  defective  certificate  of  acknowledgment. 

Section  616.— NOTARY'S  KNOWLEDGE  OF  PARTY 
ACKNOWLEDGING  INSTRUMENT.— A  Notary  is 
bound  to  know  the  person  acknowledging  an  instrument 
before  him,  or,  if  he  is  not  personally  acquainted  with 
him,  he  is  bound  to  have  the  person's  identity  established 
by  competent  proof.  If  he  knows  the  person,  he  may  so 
state  in  his  certificate  of  acknowledgment;  if  he  does  not 
know  him  personally,  he  may  state  in  his  certificate  of 
acknowledgment  the  proof  presented  to  establish  his 
identity.    When  a  Notary  Public,  in  taking  and  certifying 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  369 

an  acknowledgment  to  a  mortgage,  neglected  to  state 
in  his  certificate  that  the  party  acknowledging  the  instru- 
ment was  known  to  him,  or  was  identified  by  the  testimony 
of  a  witness  examined  by  him  for  that  purpose,  the  Su- 
preme Court  of  California  held  that  the  Notary  was  guilty 
of  gross  negligence,  and  that  he  and  his  bondsmen  were 
responsible  to  the  party  injured  for  the  damages  resulting 
from  his  negligence.  The  Court  said :  "Plaintifif  loaned  to 
one  Dupuy  a  sum  of  money,  taking  as  security  a  mortgage 
on  a  lot  in  San  Francisco.  The  mortgage  was  acknowl- 
edged by  Dupuy  before  defendant  Finlay,  who  was  a 
Notary  Public.  The  mortgage  used  was  an  ordinary 
printed  form,  having  a  certificate  of  acknowledgment  in 
blank,  in  which  was  inserted,  in  the  hand  of  one  Sanders, 
who  acted  in  the  transaction  as  attorney  for  both  mort- 
gagor and  mortgagee,  the  name  of  the  mortgagor  and 
the  date  of  the  acknowledgment.  To  this  certificate  the 
Notary  affixed  his  signature  and  seal,  but  omitted  to  state 
either  that  the  party  acknowledging  was  known  to  him, 
or  was  identified  by  the  testimony  of  a  witness  examined 
for  that  purpose.  In  consequence  of  this  omission,  the 
record  of  the  mortgage  was  held  not  to  impart  notice  to 
subsequent  encumbrancers.  Plaintiflf's  lien  was  postponed 
in  favor  of  a  later  mortgage,  which  exhausted  the  entire 
property,  and  Dupuy  being  insolvent,  the  debt  was  lost. 
Plaintiflf  now  seeks  to  recover,  on  the  bond  of  the  Notary, 
the  damages  suffered  by  the  negligent  and  unskilful  per- 
formance of  an  official  act.  The  purpose  of  a  certificate 
of  acknowledgment  is  to  entitle  the  deed  to  be  recorded, 
and  to  be  admitted  in  evidence  without  further  proof. 
The  certificate  furnished  was  utterly  worthless  for  either 
purpose.  This  neglect  is  not  excused  by  the  fact  that  the 
certificate  had  been  partially  filled  by  the  attorney  for  the 
grantee.  The  certificate,  upon  its  face,  is  unfinished ;  the 
date  and  the  name  of  the  grantor  had  been  inserted,  leaving 
it  for  the  Notary  to  insert  his  knowledge  or  the  evidence 
received     of     the     identity     of     the     party     making     the 


370  BUSINESS   LAWS   FOR   BUSINESS    MEN. 

acknowledgment.  If  the  Notary  read  the  certificate  before 
signing  it,  this  omission  must  have  been  known  to  him  ;  if  he 
did  not,  he  is  equally  guilty  of  negligence,  for  an  officer  who 
affixes  his  official  signature  and  seal  to  a  document,  without 
examining  it  to  find  whether  the  facts  certified  are  true, 
can  scarcely  be  said  to  faithfully  perform  his  duty  accord- 
ing to  law."  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Fogarty  vs.  Finlay,  which  decision  is  printed 
in  Volume  10  of  the  California  Reports,  page  239.) 

Section  617.— PARTY  INTRODUCED  TO  NOTARY. 

— The  acknowledgment  of  an  instrument  must  not  be  taken, 
unless  the  Notary  taking  it  knows,  or  has  satisfactory  evi- 
dence, on  the  oath  or  affirmation  of  a  credible  witness,  that 
the  person  making  such  acknowledgment  is  the  individual 
who  is  described  in  and  who  executed  the  instrument.  A 
Notary  has  no  right,  in  disregard  of  this  plain  provision  of 
the  law,  to  certify  that  he  knows  a  person  whom  he  does 
not  know,  on  the  mere  introduction  of  a  third  party ;  and 
if  he  does  so,  and  a  loss  results,  he  renders  himself  and  his 
sureties  liable  to  make  good  the  loss. 
Civil  Code,  Section  1185. 

Section    618.— MISAPPROPRIATION    OF    MONEYS. 

— As  it  is  no  part  of  the  official  duty  of  a  Notary  to  receive 
money  from  or  for  anybody,  his  sureties  are  not  liable  for 
money  fraudulently  obtained  and  retained  by  him.  So,  if 
a  Notary  Public,  who  is  also  a  real  estate  agent  and  en- 
gaged in  negotiating  loans,  by  false  representations  pro- 
cures money  upon  forged  mortgages,  and  then  retains  the 
money,  his  sureties  are  not  liable.  The  sureties  upon  an 
official  bond  are  not  sureties  for  the  general  good  behavior 
of  the  officer.  They  are  responsible  only  for  his  official 
misconduct  or  neglect.  As  stated,  it  is  no  part  of  the  duty 
of  a  Notary  Public  to  receive  money  from  or  for  anybody. 
It  is  misconduct,  but  not  official  misconduct,  for  a  Notary 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  371 

to  fraudulently  obtain  money  in  the  manner  stated.  He 
does  not  receive  any  money  in  his  official  capacity.  The 
sureties  on  his  official  bond  are  not  liable  for  such  mis- 
conduct, because  it  is  only  against  his  official  misconduct 
that  the  sureties  consent  to  indemnify  persons  injured  by 
him. 

Section  619.— FEES  OF  NOTARY.— The  fees  of  Nota- 
ries allowed  by  law  are  as  follows :  For  drawing  and  copy- 
ing every  protest  for  non-payment  of  a  promissory  note,  or 
for  the  non-payment  or  non-acceptance  of  a  bill  of  exchange, 
draft,  or  check,  two  dollars ;  for  drawing  and  serving  every 
notice  of  non-payment  of  a  promissory  note,  or  of  the 
non-payment  or  non-acceptance  of  a  bill  of  exchange,  order, 
draft,  or  check,  one  dollar;  for  recording  every  protest,  one 
dollar;  for  drawing  an  affidavit,  deposition,  or  any  paper 
other  than  those  above  mentioned,  for  each  folio,  thirty 
cents ;  for  taking  an  acknowledgment  or  proof  of  a  deed 
or  other  instrument,  to  include  the  seal  and  the  writing 
of  the  certificate,  for  the  first  two  signatures,  one  dollar 
each,  and  for  each  additional  signature,  fifty  cents ;  for 
administering  an  oath  or  affirmation,  fifty  cents ;  for  every 
certificate,  to  include  writing  it,  and  the  seal,  one  dollar. 
Political  Code,  Section  798. 


Carriers  of  Freight 

Section      620.— FREIGHT      AND      FREIGHTAGE.— 

Property  carried  is  called  freight;  the  compensation  to  be 
paid  for  its  carriage  is  called  freightage;  the  person  who 
delivers  the  freight  to  the  carrier  is  called  the  consignor; 
and  the  person  to  whom  it  is  to  be  delivered  is  called  the 
consignee. 

Section  621.— CARE  AND  DILIGENCE  REQUIRED 
OF  CARRIERS. — A  carrier  of  property  for  compensation 


372  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

must  use  at  least  ordinary  care  and  diligence  in  the  per- 
formance of  all  his  duties. 

Section   622.— DIRECTIONS  TO   CARRIERS.— When 

the  directions  of  a  consignor  and  consignee  are  conflicting, 
the  carrier  must  comply  with  those  of  the  consignor  in 
respect  to  all  matters  except  the  delivery  of  the  freight,  as 
to  which  he  must  comply  with  the  directions  of  the  con- 
signee. But  the  consignor  may  give  special  directions  to 
the  carrier  to  receive  no  orders  of  any  kind  from  the  con- 
signee inconsistent  with  his  own. 
Civil  Code,  Section  2116. 

Section  623.— DELIVERY  OF  FREIGHT.— A  carrier 
of  freight  must  deliver  it  to  the  consignee,  at  the  place 
to  which  it  is  addressed,  in  the  manner  usual  at  that  place. 
If  there  is  no  usage  to  the  contrary  at  the  place  of  delivery, 
freight  must  be  delivered  as  follows:  (1)  If  carried  upon 
a  railway  owned  or  managed  by  the  carrier,  it  may  be  de- 
livered at  the  station  nearest  to  the  place  to  which  it  is 
addressed;  (2)  If  carried  by  sea  from  a  foreign  country,  it 
may  be  delivered  at  the  wharf  where  the  ship  moors,  within 
a  reasonable  distance  from  the  place  of  address ;  or  if  there 
is  no  wharf,  on  board  a  lighter  alongside  the  ship;  or,  (3) 
In  other  cases,  it  must  be  delivered  to  the  consignee  or  his 
agent,  personally,  if  either  can,  with  reasonable  diligence, 
be  found. 

Civil  Code,  Section  2119. 

Section  624.— OBLIGATIONS  OF  CARRIER  WHEN 
FREIGHT  NOT  DELIVERED.— If,  for  any  reason,  a 
carrier  does  not  deliver  freight  to  the  consignee  or  his 
agent  personally,  he  must  give  notice  to  the  consignee  of 
its  arrival,  and  keep  the  freight  in  safety,  upon  his  responsi- 
bility as  a  warehouseman,  until  the  consignee  has  had  a 
reasonable  time  to  remove  it.  If  the  place  of  resrdence 
or  business  of  the  consignee  be  unknown  to  the  carrier, 
he  may  give  the  notice  by  letter  dropped  in  the  nearest 


BUSINESS   CONTRACTS  AND   LEGAL  OBLIGATIONS.  373 

post-office.  If  the  consignee  does  not  accept  and  remove 
freight  within  a  reasonable  time  after  the  carrier  has  ful- 
filled his  obligation  to  deliver,  or  duly  offered  to  fulfill  the 
same,  the  carrier  may  exonerate  himself  from  further  lia- 
bility by  placing  the  freight  in  a  suitable  warehouse,  on 
storage,  on  account  of  the  consignee,  and  giving  notice 
thereof  to  him. 

Civil  Code,  Sections  2120,  2121. 

Section  625.— BILL  OF  LADING.— A  bill  of  lading  is 
an  instrument  in  writing,  signed  by  a  carrier  or  his  agent, 
describing  the  freight  so  as  to  identify  it,  stating  the  name 
of  the  consignor,  the  terms  of  the  contract  for  carriage, 
and  agreeing  or  directing  that  the  freight  be  delivered  to 
the  order  or  assigns  of  a  special  person  at  a  special  place. 
All  the  title  to  the  freight  which  the  first  holder  of  a  bill 
of  lading  had  when  he  received  it  passes  to  every  subse- 
quent indorsee  in  good  faith  and  for  value,  in  the  ordinary 
course  of  business.  A  bill  of  lading  represents  the  prop- 
erty for  which  it  has  been  given,  and  by  its  indorsement 
or  by  delivery  without  indorsement  the  property  in  the 
goods  may  be  transferred,  when  such  is  the  intent  with 
which  the  indorsement  or  delivery  is  made.  By  the  rules 
of  commercial  law,  bills  of  lading  are  regarded  as  symbols 
of  the  property  therein  described,  and  the  delivery  of  such 
bill,  by  one  having  an  interest  in  or  a  right  to  control  the 
property,  is  equivalent  to  a  delivery  of  the  property  itself. 
A  consignor  may  effectuate  a  sale  or  pledge  of  the  prop- 
erty consigned  by  delivery  of  the  bill  of  lading  to  the  pur- 
chaser or  pledgee,  as  completely  as  if  the  property  were  in 
fact  delivered.  Bills  of  lading  are  choses  in  action,  and 
instruments  of  this  character  may  be  transferred  for  a 
valuable  consideration  by  delivery  only.  The  indorsee  for 
value  of  a  bill  of  lading  which  has  been  delivered  to  him 
may  bring  an  action  in  his  own  name  for  the  goods.  And 
generally  in  all  cases  where  the  shipper  having  the  right 
of  property  indorses  and  delivers  the  bill  of  lading,  the 


374  BUSINESS  I^WS  FOR  BUSINESS   MEN. 

indorsee  may  maintain  an  action  for  the  goods  represented 
by  such  bill  of  lading  in  his  own  name.  A  person  pur- 
chasing a  draft  drawn  by  the  shipper  of  the  goods,  with  a 
bill  of  lading  accompanying  it,  has  a  special  property  in 
the  goods  covered  by  the  bill  of  lading;  and  usually  in 
the  case  of  a  time  draft  this  special  property  vests  in  the 
purchaser  of  the  draft  as  security  for  its  acceptance.  It 
may  be,  if  so  agreed  between  the  shipper  and  the  purchaser 
of  the  draft,  that  the  purchaser  will  have  a  right  to  retain 
the  bill  of  lading,  and  thus  retain  his  special  property  in 
the  goods  shipped,  not  only  for  the^  acceptance  but  for  the 
payment  of  the  draft.  When  a  bill  of  lading  is  made  to 
the  "bearer,"  or  in  equivalent  terms,  a  simple  transfer,  by 
delivery,  conveys  the  same  title  as  an  indorsement. 
Civil  Code,  Sections  2126,  2127,  2128. 

Section  626.— NUMBER  OF   BILLS    OF  LADING.— 

A  carrier  must  subscribe  and  deliver  to  the  consignor,  on 
demand,  any  reasonable  number  of  bills  of  lading,  of  the 
same  tenor,  expressing  truly  the  original  contract  for  car- 
riage ;  and  if  he  refuses  to  do  so,  the  consignor  may  take 
the  freight  from  him,  and  recover  from  him,  besides,  all 
damages  he  sustains. 

Civil  Code,  Section  2130. 

Section  627.— CARRIER  EXONERATED  BY  DE- 
LIVERY.— A  carrier  is  exonerated  from  liability  for 
freight  by  delivering  it  in  good  faith,  to  any  holder  of 
a  bill  of  lading,  properly  indorsed,  or  made  in  favor  of 
the  bearer.  When  a  carrier  has  given  a  bill  of  lading,  he 
may  require  its  surrender,  or  a  reasonable  indemnity  against 
claims  thereon,  before  delivering  the  freight. 
Civil  Code,  Sections  2131,  2132. 

Section  628.— WHEN  FREIGHT  MUST  BE  PAID.— 

A  carrier  may  require  his  freightage  to  be  paid  upon  his 
receiving  the  freight;  but  if  he  does  not  demand  it  then, 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  375 

he  cannot  do  so  until  he  is  ready  to  deliver  the  freight  to 
the  consignee.     The  carrier  may  demand  payment  in  ad- 
vance, subject  to  a  liability  to  refund  it  if  not  earned. 
Civil  Code,  Section  2136. 

(a) — Carrier's  Lien. — A  carrier  has  a  lien  for  freightage 
and  for  services  rendered  at  request  of  shipper  or  consignee 
in  and  about  the  transportation,  care  and  preservation  of 
the  property,  and  he  also  has  a  lien  for  money  advanced  at 
request  of  shipper  or  consignee  to  discharge  a  prior  lien. 
Act  of  the  Legislature,  approved  April  19,  1909. 

Section  629.— WHO  MUST  PAY  FREIGHT.— The  con- 
signor of  freight  is  presumed  to  be  liable  for  the  freightage ; 
but  if  the  contract  between  him  and  the  carrier  provides 
that  the  consignee  shall  pay  it,  and  the  carrier  allows  the 
consignee  to  take  the  freight,  he  cannot  afterward  collect 
the  freightage  from  the  consignor.  The  consignee  of 
freight  is  liable  for  the  freightage,  if  he  accepts  the  freight 
with  notice  of  the  intention  of  the  consignor  that  he  should 
pay  it.  If  a  part  of  the  freight  is  accepted  by  a  consignee, 
without  a  specific  objection  that  the  remainder  is  not  de- 
livered, the  freightage  must  nevertheless  be  apportioned 
and  paid  as  to  that  part.  If  a  consignee  voluntarily  re- 
ceives freight  at  a  place  short  of  the  one  agreed  upon  for 
delivery,  the  carrier  is  entitled  to  a  just  proportion  of  the 
freightage,  according  to  the  distance.  If  the  carrier,  be- 
ing ready  and  willing,  ofifers  to  carry  the  freight  to  the 
destination  originally  intended,  he  is  entitled  to  the  full 
freightage. 

Civil  Code,  Sections  2137,  2138,  2139,  2141,  2142. 

Section      630.— FREIGHT       CARRIED       FARTHER 
THAN     AGREED.— If    freight     is     carried    beyond    the 
destination  agreed  upon  by  the  parties,  the  carrier  is  not 
entitled  to  any  additional  compensation. 
Civil  Code,   Section  2143. 


376  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  631.— OBLIGATION  TO  ACCEPT  FREIGHT. 

• — It  is  a  general  rule  that  a  common  carrier  must,  if  able 
to  do  so,  accept  and  carry  whatever  freight  is  offered.  The 
freight  must  be  offered  at  a  reasonable  time  and  place,  and 
be  of  a  kind  that  the  common  carrier  undertakes  or  is 
accustomed  to  carry.  For  if  the  freight  offered  is  not  of 
the  kind  which  the  carrier  has  undertaken  to  carry,  or  if 
it  be  a  dangerous  shipment,  another  rule  may  prevail.  A 
common  carrier  is  not  bound  to  receive  goods  which  are 
so  defectively  packed  that  their  condition  will  entail  upon 
the  company  extra  care  and  extra  risk;  nor  dangerous 
articles,  such  as  nitroglycerine,  dynamite,  gunpowder, 
aquafortis,  oil  of  vitriol,  matches,  etc.  It  is  optional  with 
the  carrier  to  accept  such  freight;  it  may  accept  or  reject 
it,  when  offered;  and  when  accepted  at  all,  the  carrier  may 
insist  upon  such  limitations  of  its  liability  as  it  sees  fit. 
A  common  carrier  may  not  relieve  itself  from  any  liability 
imposed  upon  it  by  law  under  the  dictates  of  public  policy ; 
but,  on  the  other  hand,  upon  any  question  of  private  right, 
or  the  right  of  private  property,  it  may  lessen  the  degree 
of  responsibility  which  attaches  to  it  as  an  insurer,  by  any 
contract  not  in  itself  unreasonable.  Thus,  the  shipping 
receipt  may  lawfully  exempt  the  carrier  from  liability  from 
loss  by  fire,  where  inflammable  or  combustible  articles  of 
freight  are  offered  for  carriage. 

Section  632.— AGREEMENTS  TO  LIMIT  LIABIL- 
ITY. — The  obligations  of  a  common  carrier  can  only  be 
limited  by  special  agreement.  General  notice  by  the  car- 
rier is  not  sufficient,  and  a  special  contract  with  each 
shipper  is  required  by  the  law.  But  a  common  carrier 
cannot  be  exonerated,  even  by  special  contract,  from  its 
liability  for  the  gross  negligence,  fraud,  or  wilful  wrongs 
of  itself  or  servants,  A  consignor  or  consignee,  by  accept- 
ing a  bill  of  lading,  or  written  contract  for  carriage,  with 
knowledge  of  its  terms,  assents  to  the  rate  of  hire,  and  the 
time,   place,   and   manner  of  delivery  therein   stated;  and 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  377 

also  to  the  limitation  stated  therein  upon  the  amount  of 
the  carrier's  liability  in  case  property  carried  in  packages, 
trunks,  or  boxes  is  lost  or  injured,  when  the  value  of  the 
property  is  not  named ;  and  also  to  the  limitation  stated 
therein  to  the  carrier's  liability  for  loss  or  injury  to  live 
animals  carried.  But  his  assent  to  any  other  modification 
of  the  carrier's  obligations  contained  in  such  instrument 
can  be  manifested  only  by  his  signature  to  the  same. 
Civil  Code,  Section  2176. 

Section  633.— GENERAL  LIABILITY  OF  COMMON 
CARRIERS  FOR  LOSS.— Unless  the  consignor  accom- 
panies the  freight  and  retains  exclusive  control  thereof, 
an  inland  common  carrier  of  property  is  liable  for  loss  or 
injury  of  the  property  from  any  cause  whatever,  except: 
(1)  An  inherent  defect,  vice,  or  weakness,  or  a  spontaneous 
action,  of  the  property  itself;  (2)  The  act  of  a  public  en- 
emy of  the  United  States,  or  of  this  State;  (3)  The  act  of 
the  law;  or  (4)  Any  irresistible  superhuman  cause.  The 
first  exception,  inherent  defects,  includes  decay  of  fruits, 
the  diminution,  leakage,  or  evaporation  of  liquids,  and  the 
spontaneous  combustion  of  goods.  In  all  •  these  cases, 
where  the  negligence  of  the  carrier  does  not  cooperate  in 
the  loss,  he  will  be  excused.  Live'  animals  are  also  in- 
cluded in  this  exception,  to  whatever  extent  they  injure 
themselves  or  one  another,  impelled  by  their  inherent  vices 
and  propensities.  A  public  enemy,  the  second  exception, 
is  one  with  whom  the  Nation  or  State  is  at  open  war,  and 
pirates  on  the  high  seas,  who  are  universally  treated  as 
the  enemies  of  all  mankind.  By  the  act  of  the  law,  stated 
as  the  third  exception,  is  meant  the  contingency  of  goods 
attached,  or  taken  under  execution,  or  other  legal  process. 
By  the  fourth  exception,  an  irresistible  superhuman  cause, 
is  meant  some  act  of  God,  as  where  freight  is  destroyed 
by  lightning,  or  volcanic  eruption,  or  other  cause  over 
which  human  agency  could  have  no  control. 
Civil  Code,  Section  2194. 


378  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  633a.  — LOSSES  NOT  WAIVED  BY  CON- 
TRACT.— A  common  carrier  cannot  limit  itself  from  liabil- 
ity in  case  of  gross  negligence,  fraud,  or  willful  wrong.  The 
excusable  results  flowing  from  the  acts  of  God  are  those 
only  which  cannot  be  prevented  by  the  interposition  of 
human  agency.  In  a  suit  against  a  railroad  company  for 
the  freezing  of  potatoes  while  en  route,  this  was  held  not 
to  be  a  loss  for  which  the  company  could  claim  immunity, 
under  the  limitation  of  liability  clause  in  its  contract  with 
the  shipper.  Any  movable  object  can  be  kept  from  freezing, 
and  the  freezing  of  any  such  articles  cannot  be  excused  as 
being  an  act  of  God.  (Decided  by  the  California  District 
Court  of  Appeals  in  the  case  of  Wood,  Curtiss  &  Company 
vs.  the  Missouri  Pacific  Railway  Company,  which  decision 
is  printed  in  Volume  II  of  California  Appellate  Decisions, 
No.  88,  page  419.) 

Section  634.— LIABILITY  FOR  DELAY.— A  common 
carrier  is  liable  for  delay  only  when  it  is  caused  by  his  want 
of  ordinary  care  and  diligence. 

Civil  Code,  Section  2196. 

Section  635.— SHIPMENT  OF  GOLD,  PRECIOUS 
STONES,  STATUARY,  PICTURES,  GLASS  OR 
CHINAWARE. — A  common  carrier  of  gold,  silver, 
platina,  or  precious  stones,  or  of  imitations  thereof,  in  a 
manufactured  or  unmanufactured  state;  of  timepieces  of 
any  description ;  of  negotiable  paper  or  other  valuable 
writings ;  of  pictures,  glass,  or  chinaware ;  of  statuary,  silk, 
or  laces;  or  of  plated  ware  of  any  kind,  is  not  liable  for 
more  than  fifty  dollars  upon  the  loss  or  injury  of  any  one 
package  of  such  articles,  unless  he  has  notice,  upon  the 
receipt  thereof,  by  mark  upon  the  package  or  otherwise, 
of  the  nature  of  the  freight ;  nor  is  such  carrier  liable  upon 
any  package  carried  for  more  than  the  value  of  the  articles 
named  in  the  receipt  or  the  bill  of  lading. 
Civil  Code,  Section  2200. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  379  . 

Section  636.— ACCEPTING  FREIGHT  FOR  PLACE 
BEYOND  USUAL  ROUTE.— If  a  common  carrier  accepts 
freight  for  a  place  beyond  its  usual  route,  it  must,  unless 
otherwise  agreed,  deliver  the  freight  at  the  end  of  its  route 
in  that  direction  to  some  other  common  carrier  carrying 
to  the  place  of  address,  or  connected  with  those  who  thus 
carry;  and  its  liability  ceases  upon  making  such  delivery. 
If  freight  addressed  to  a  place  beyond  the  usual  route  of 
the  common  carrier  who  first  receives  it  is  lost  or  injured, 
the  carrier  must,  within  a  reasonable  time  after  demand, 
give  satisfactory  proof  to  the  consignor  that  the  loss  or 
injury  did  not  occur  while  the  freight  was  in  its  charge, 
or  it  will  be  liable  for  the  loss. 

Civil  Code,  Sections  2201,  2202. 

Section  636a.— RAILROADS  MUST  FURNISH  CARS. 

— Whenever  cars  are  wanted,  the  shipper  may  apply  in  writ- 
ing to  the  superintendent  or  agent  of  a  railroad  company, 
indicating  the  point  where  the  cars  are  to  be  sent,  and  how 
many  are  desired.  The  railroad  company  must  furnish  the 
cars,  if  the  application  be  for  10  cars  or  less  in  5  days ;  if 
the  application  be  for  10  and  less  than  50  cars,  they  must  be 
furnished  in  10  days ;  if  the  application  be  for  SO  cars  or 
more,  they  must  be  furnished  in  IS  days.  If  the  application 
be  for  cars  to  carry  perishable  freight,  the  number  of  cars 
applied  for  must  be  furnished  within  48  hours.  The  time 
will  begin  to  run  from  the  hour  of  seven  o'clock  A.  M.  of  the 
next  day  following  the  day  when  the  application  for  cars  is 
received  by  the  railroad  company.  The  application  for  cars 
must  state  the  number  of  cars  desired,  the  kind  of  freight 
to  be  shipped,  the  point  of  destination,  and  the  time  and 
place  at  which  they  are  desired.  When  cars  are  applied  for, 
if  they  are  not  furnished,  the  railroad  company  becomes 
liable  and  immediately  indebted  to  the  party  who  applied, 
for  the  sum  of  five  dollars  per  day  for  each  car  failed  to  be 
furnished,  and  in  addition  all  actual  damages  the  applicant 
may  have  sustained.     When  a  person  applies  for  cars,  the 


380  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

railroad  company  has  the  right  to  demand  a  deposit  of  one- 
fourth  of  the  amount  of  the  freight  charge.  The  cars,  when 
furnished,  must  be  loaded  within  forty-eight  hours ;  and 
if  not  loaded  within  that  time,  six  dollars  per  day  must  be 
paid  the  company  for  each  car  not  used,  besides  the  actual 
damage  sustained  by  the  company.  The  consignee  must  un- 
load cars  within  forty-eight  hours  after  delivery  to  him,  and 
if  he  fails  to  do  so  he  will  be  liable  to  the  company  in  the 
sum  of  six  dollars  per  day.  The  liability  of  either  party 
is  excused  when  failure  to  furnish,  load,  or  unload  cars,  is 
caused  by  public  calamity,  strikes,  washouts,  acts  of  God, 
the  public  enemy,  mobs,  riots,  wrecks,  fires  or  accidents. 
Act  of  the  Legislature,  approved  April  20,  1909. 

Letters  of  Credit 

Section  637.— WHAT  IS  A  LETTER  OF  CREDIT.— 

A  letter  of  credit  is  a  written  instrument,  addressed  by 
one  person  to  another,  requesting  the  latter  to  give  credit 
to  the  person  in  whose  favor  it  is  drawn. 

Section  638.— HOW  ADDRESSED.— A  letter  of  credit 
may  be  addressed  to  several  persons  in  succession. 

Section  639.— LETTERS  GENERAL  OR  SPECIAL.— 

A  letter  of  credit  is  either  general  or  special.  When  the 
request  for  credit  in  a  letter  is  addressed  to  specified  per- 
sons, by  name  or  description,  the  letter  is  special.  All  other 
letters  of  credit  are  general.  A  letter  of  credit  addressed 
.  to  a  particular  person  is  limited  to  him,  for  the  writer  must 
be  deemed  to  have  granted  it  in  reliance  on  his  prudence 
and  discretion  in  acting  upon  it.  A  general  letter  of  credit 
gives  any  person  to  whom  it  may  be  shown  authority  to 
comply  with  its  request,  and  by  so  doing,  it  becomes,  as  to 
him,  of  the  same  effect  as  though  addressed  to  him  by  name. 
Several  persons  may  successively  give  credit  upon  a  general 
letter. 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  381 

Section  640.— LIABILITY   OF  THE  WRITER.— The 

writer  of  a  letter  of  credit  is,  upon  the  default  of  the  debtor, 
liable  to  those  who  gave  credit  in  compliance  with  its  terms. 
By  giving  the  letter,  the  writer  obliges  himself  to  accept 
such  bills  or  orders  as  may  be  drawn  under  it  in  good  faith, 
and  within  the  limits  of  the  credit  specified  in  the  letter. 

Section  641.— LETTER  OF  CREDIT  MAY  BE  A 
CONTINUING  GUARANTY.— If  the  parties  to  a  letter 
of  credit  appear  by  its  terms  to  contemplate  a  course  of 
future  dealing  between  the  parties,  it  is  not  exhausted  by 
giving  a  credit,  even  to  the  amount  limited  by  the  letter, 
which  is  subsequently  reduced  or  satisfied  by  payments 
made  by  the  debtor,  but  it  is  to  be  deemed  a  continuing 
guaranty. 

Section  642.— WHEN  NOTICE  TO  THE  WRITER 
NECESSARY. — A  letter  of  credit  must  by  its  terms  ex- 
press or  imply  the  necessity  of  giving  notice,  or  no  notice 
of  credit  obtained  upon  it  will  be  necessary.  The  writer 
of  a  letter  of  credit  is  liable  for  credit  given  upon  it  with- 
out notice  to  him,  unless  it  can  be  seen  from  the  letter  itself 
that  notice  to  the  writer  was  intended  by  the  parties.  Un- 
less there  is  something  in  the  nature  of  the  contract  or 
terms  of  the  letter  making  acceptance  or  notice  necessary 
as  a  condition  of  liability,  neither  is  necessary  to  bind  the 
writer. 

Section  643.— CREDIT  GIVEN  MUST  AGREE  WITH 
TERMS  OF  LETTER.— The  law  of  California  provides, 
that  if  a  letter  of  credit  prescribes  the  persons  by  whom 
or  the  mode  in  which  the  credit  is  to  be  given,  or  the  term 
of  credit,  or  limits  the  amount,  the  writer  is  not  bound 
except  for  transactions,  which,  in  these  respects,  conform 
strictly  to  the  terms  of  the  letter. 

Civil  Code,  Sections  2858,  2859,  2861,  2862,  2864, 
2865. 


382  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

Section  644.~INTENTION  OF  PARTIES.— In  cases 
where  doubt  arises  as  to  the  real  meaning  of  a  letter  of 
credit,  the  rule  of  law  is  that  the  terms  of  the  letter  will 
be  liberally  and  reasonably  construed.  The  intention  of 
the  parties  is  the  essential  thing  to  be  ascertained.  But 
words  of  doubtful  meaning,  or  technical  terms,  or  local 
expressions,  used  in  a  letter  of  credit,  cannot  be  taken 
advantage  of  to  defeat  the  liability  of  one  who  signs  and 
gives  such  a  letter.  True,  it  is  a  general  rule,  that  the 
surety  or  guarantor  should  not  be  held  beyond  the  precise 
stipulations  of  his  contract,  and  he  has  a  right  to  insist 
upon  the  exact  performance  of  any  condition  inserted  in 
the  letter.  But  when  the  question  is  as  to  the  meaning 
which  shall  be  given  to  the  terms  used  in  the  instrument, 
the  law  will  always  be  found  liberal  and  reasonable ;  for 
letters  of  credit  are  commercial  instruments,  generally 
drawn  up  by  merchants  in  brief  language,  and  often  loose 
in  their  structure  and  aim ;  and  to  give  the  words  of  a 
letter  of  credit  a  nice  and  technical  -construction,  would 
not  only  defeat  the  intention  of  the  parties  in  many  in- 
stances, but  render  them  too  unsafe  a  basis  to  rely  on  for 
extensive  credits,  so  often  sought  in  the  present  active 
business  of  commerce  throughout  the  world.  Therefore, 
it  is  well  to  remember,  that  while  parties  will  be  held  by 
the  law  to  the  terms  of  their  contract,  yet  the  law  will  not 
allow  a  person  who  advances  money  on  the  faith  of  a  letter 
of  credit,  however  loosely  drawn,  to  suffer  loss  by  any 
strained  or  technical  construction  of  the  language  or  direc- 
tions contained  in  it. 

Bills  of  Exchange 

Section  645.— NATURE  OF  BILLS  OF  EXCHANGE. 

— A  bill  of  exchange  is  an  instrument,  negotiable  in  form, 
by  which  one,  who  is  called  the  drawer,  requests  another, 
called  the  drawee,  to  pay  a  specified  sum  of  money.  A  bill 
of  exchange  may  give  the  name  of  any  person  in  addition 
to  the  drawee,  to  be  resorted  to  in  case  of  need. 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  383 

Section  646.— BILL  IN  PARTS  OF  A  SET.— A  bill  of 
exchange  may  be  drawn  in  any  number  of  parts,  each  part 
stating  the  existence  of  the  others,  and  all  forming  one 
set.  An  agreement  to  draw  a  bill  of  exchange  binds  the 
drawer  to  execute  it  in  three  parts,  if  the  other  party  to 
the  agreement  desires  it.  Presentment,  acceptance,  or 
payment,  of  a  single  part  in  a  set  of  a  bill  of  exchange, 
is  sufficient  for  the  whole. 

Civil  Code,  Sections  3171,  3172,  3173,  3174,  3175. 

Section  647.— WHERE  BILL  OF  EXCHANGE  IS 
PAYABLE.— A  bill  of  exchange  is  payable:  (1)  At  the 
place  where,  by  its  terms,  it  is  made  payable ;  or,  (2)  If  it 
specify  no  place  of  payment,  then  at  the  place  to  which  it 
is  addressed ;  or,  (3)  If  it  be  not  addressed  to  any  place, 
then  at  the  place  of  residence  or  business  of  the  drawee, 
or  wherever  he  may  be  found.  If  the  drawee  has  no  place 
of  business,  or  if  his  place  of  business  or  residence  cannot 
with  reasonable  diligence  be  ascertained,  presentment  for 
payment  is  excused,  and  the  bill  may  be  protested  for  non- 
payment. 

Civil  Code,  Section  3176. 

Section  648.— WHEN  BILL  OF  EXCHANGE  MAY 
BE  PRESENTED  FOR  ACCEPTANCE.— A  bill  of  ex- 
change may  be  presented  by  the  holder  to  the  drawee  for 
acceptance,  at  any  time  before  it  is  payable,  and  if  accept- 
ance is  refused,  the  bill  is  dishonored.  When  a  bill  of 
exchange  is  payable  at  a  specified  time  after  sight,  the 
drawer  and  indorsers  are  exonerated  if  it  is  not  presented 
for  acceptance  within  ten  days  after  the  time  which  would 
suffice,  with  ordinary  diligence,  to  forward  it  for  acceptance, 
unless  presentment  is  excused. 

Section  649.— HOW  PRESENTMENT  MUST  BE 
MADE. — Presentment  of  a  bill  of  exchange  for  acceptance 
must  be  made  in  the  following  manner,  as  nearly  as  by 


384  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

reasonable  diligence  is  practicable:  (1)  The  bill  must  be 
presented  by  the  holder  or  his  agent ;  (2)  It  must  be  pre- 
sented on  a  business  day,  and  within  reasonable  hours; 
(3)  It  must  be  presented  to  the  drawee,. or,  if  he  be  absent 
from  his  place  of  residence  or  business,  to  some  person 
having  charge  thereof,  or  employed  therein ;  and  the  drawee, 
on  such  presentment,  may  postpone  his  acceptance  or  re- 
fusal until  the  next  day.  If  the  drawee  have  no  place  of 
business,  or  if  his  place  of  business  or  residence  cannot, 
with  reasonable  diligence,  be  ascertained,  presentment  for 
acceptance  is  excused,  and  the  bill  may  be  protested  for 
non-acceptance.  Presentment  for  acceptance  to  one  of 
several  joint  drawers,  and  refusal  by  him,  dispenses  with 
presentment  to  the  others.  A  bill  of  exchange  which  speci- 
fies a  drawee  in  case  of  need  must  be  presented  to  him  for 
acceptance  or  payment,  as  the  case  may  be,  before  it  can 
be  treated  as  dishonored. 

Civil  Code,  Section  3186. 

Section  650.— ACCEPTANCE  MUST  BE  IN  WRIT- 
ING.— An  acceptance  of  a  bill  of  exchange  must  be  made 
in  writing,  by  the  drawee  or  by  an  acceptor  for  honor,  and 
may  be  made  by  the  acceptor  writing  his  name  across  the 
face  of  the  bill,  with  or  without  other  words.  The  holder 
of  a  bill  of  exchange,  if  entitled  to  an  acceptance,  may  treat 
the  bill  as  dishonored  if  the  drawee  refuses  to  write  across 
its  face  an  unqualified  acceptance. 

Section  651.— WHAT  MAY  BE  TREATED  AS  SUF- 
FICIENT ACCEPTANCE.— The  holder  of  a  bill  of  ex- 
change may,  without  prejudice  to  his  rights  against  prior 
parties,  receive  and  treat  as  a  sufficient  acceptance:  (1)  An 
acceptance  written  upon  any  part  of  the  bill,  or  upon  a 
separate  paper;  (2)  An  acceptance  qualified  so  far  only  as 
to  make  the  bill  payable  at  a  particular  place  within  the 
city  or  town  in  which,  if  the  acceptance  was  unqualified, 
it  would  be  payable;  or,   (3)  A  refusal  by  the  drawee  to 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  385 

return  the  bill  to  the  holder  after  presentment,  in  which 
case  the  bill  is  payable  immediately,  without  regard  to  its 
terms.  The  acceptance  of  a  bill  of  exchange  by  a  separate 
instrument  binds  the  acceptor  to  one  who,  upon  the  faith 
thereof,  has  taken  it  for  value.  An  unconditional  promise, 
in  writing,  to  accept  a  bill  of  exchange,  is  a  sufficient  accept- 
ance, in  favor  of  every  person  who  upon  the  faith  thereof 
has  taken  the  bill  for  value  or  other  good  consideration. 
Civil  Code,  Sections  3195,  3197. 

Section  652.— WHEN  ACCEPTANCE  MAY  BE  CAN- 
CELED.— The  acceptor  of  a  bill  of  exchange  may  cancel 
his  acceptance  at  any  time  before  the  delivery  of  the  bill 
to  the  holder,  and  before  the  holder  has,  with  the  consent 
of  the  acceptor,  transferred  his  title  to  another  person  for 
value  upon  the  faith  of  such  acceptance. 
Civil  Code,  Section  3198. 

Section  653.— WHAT  IS  ADMITTED  BY  ACCEPT- 
ANCE.— The  acceptance  of  a  bill  of  exchange  admits  the 
signature  of  the  drawer,  but  does  not  admit  the  signature 
of  any  indorser  to  be  genuine. 

Section  654.— ACCEPTANCE  OR  PAYMENT  FOR 
HONOR.— On  the  dishonor  of  a  bill  of  exchange  by  the 
drawee,  or,  in  case  of  a  foreign  bill,  after  it  has  been  duly 
protested,  it  may  be  accepted  or  paid  by  any  person,  for 
the  honor  of  any  party  to  it.  The  holder  of  a  bill  of  ex- 
change is  not  bound  to  allow  it  to  be  accepted  for  honor, 
but  is  bound  to  accept  payment  for  honor.  The  person 
accepting  or  paying  for  honor  must  write  a  memorandum 
upon  the  bill,  stating  for  whose  honor  he  accepts  or  pays, 
and  must  give  notice  to  such  parties,  with  reasonable  dili- 
gence of  the  fact  that  he  has  accepted  or  paid  the  bill. 
Having  done  so,  he  is  entitled  to  reimbursement  from  the 
parties  for  whom  he  pays,  and  from  all  parties  prior  to 


386  BUSINESS  LAWS   POR  BUSINESS   MEN. 

them.  A  bill  of  exchange  which  has  been  accepted  for 
honor  must  be  presented  at  its  maturity  to  the  drawee  for 
payment,  and  notice  of  its  dishonor  by  him  must  be  given 
to  the  acceptor  for  honor,  in  like  manner  as  to  an  indorser ; 
after  which  the  acceptor  for  honor  must  pay  the  bill.  The 
acceptance  of  a  bill  of  exchange  for  honor  does  not  excuse 
the  holder  from  giving  notice  of  its  dishonor  by  the  drawee. 
Civil  Code,  Sections  3203,  3204,  3205,  3206,  3207. 

Section    655.— PRESENTMENT    FOR    PAYMENT.— 

If  a  bill  of  exchange  is  by  its  terms  payable  at  a  particular 
place,  and  is  not  accepted  on  presentment,  it  must  be  pre- 
sented at  the  same  place  for  payment.  A  bill  of  exchange, 
accepted  payable  at  a  particular  place,  must  be  presented 
at  that  place  for  payment,  when  presentment  for  payment 
is  necessary,  and  need  not  be  presented  elsewhere.  If  a 
bill  of  exchange,  payable  at  sight  or  on  demand,  without 
interest,  is  not  duly  presented  for  payment  within  ten  days 
after  the  time  in  which  it  could,  with  reasonable  diligence, 
be  transmitted  to  the  proper  place  for  such  presentment, 
the  drawer  and  indorsers  are  exonerated,  unless  such  pre- 
sentment is  excused.  The  circumstances  which  will  excuse 
delay  are  such  as  occur  through  floods,  or  storms,  or  war, 
or  pestilence,  or  famine,  rendering  travel  or  communication 
impossible.  Mere  delay  in  presenting  a  bill  of  exchange 
payable  with  interest,  at  sight  or  on  demand,  does  not 
exonerate  any  party  to  it.  There  are  certain  other  things 
which  will  also  excuse  both  presentment  and  notice.  The 
presentment  of  a  bill  of  exchange  for  acceptance  is  ex- 
cused if  the  drawee  has  not  capacity  to  accept  it ;  if,  for 
instance,  the  drawee,  at  the  time  when  presentment  should 
be  made,  is  insane,  his  capacity  to  make  any  contract  is 
gone,  and  the  law  will  not  require  presentment  to  him 
under  such  circumstances.  Presentment  of  a  bill  of  ex- 
change for  acceptance  or  payment,  and  also  notice  of  its 
dishonor,  are  excused  as  to  the  drawer,  if  he  forbids  the 
drawee  to  accept  or  the  acceptor  to  pay  the  bill;  or  if.  at 


BUSINESS  CONTRACTS  AND  LEGAL  OBLIGATIONS.  387 

the  time  of  drawing,  he  had  no  reason  to  believe  that  the 
drawee  would  accept  or  pay  it. 

Civil  Code,  Sections  3211,  3212,  3213,  3214,  3218, 
3220. 

Section  656.— FOREIGN  BILLS.— A  bill  of  exchange 
drawn  and  payable  within  the  State  is  an  inland  bill.  All 
others  are  called  foreign  bills  of  exchange. 

Section  657.— PROTEST  OF  FOREIGN  BILL  OF 
EXCHANGE.— Notice  of  the  dishonor  of  a  foreign  bill 
of  exchange  can  be  given  only  by  notice  of  its  protest. 
Protest  must  be  made  by  a  Notary  Public,  if  with  reason- 
able diligence  one  can  be  obtained ;  and  if  not,  then  by  any 
reputable  person,  in  the  presence  of  two  witnesses. 

Protest  must  be  made  by  an  instrument  in  writing,  giv- 
ing a  literal  copy  of  the  bill  of  exchange,  with  all  that  is 
written  thereon,  or  annexing  the  original;  stating  the  pre- 
sentment, and  the  manner  in  which  it  was  made;  the  pres- 
ence or  absence  of  the  drawee  or  acceptor,  as  the  case  may 
be ;  the  refusal  to  accept  or  to  pay,  or  the  inability  of  the 
drawee  to  give  a  binding  acceptance ;  and  in  case  of  refusal, 
the  reason  assigned,  if  any;  and,  finally,  protesting  against 
all  the  parties  to  be  charged. 

A  protest  for  non-acceptance  must  be  made  in  the  city 
or  town  in  which  the  bill  is  presented  for  acceptance,  and 
a  protest  for  non-payment  in  the  city  or  town  in  which  it 
is  presented  for  payment. 

A  protest  must  be  noted  on  the  day  of  presentment,  or 
on  the  next  business  day ;  but  it  may  be  written  out  at 
any  time  thereafter. 

The  want  of  a  protest  of  a  foreign  bill  of  exchange,  or 
delay  in  making  the  same,  is  excused  in  like  cases  with 
the  want  or  delay  of  presentment. 

Notice  of  protest  may  be  given  by  the  Notary  who  makes 
the  protest,  and  served  as  follows:  (1)  By  delivering  it  to 
the  party  to  be  charged,  personally,  at  any  place;  or,  (2) 


888  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

By  delivering  it  to  some  person  of  discretion  at  the  place 
of  residence  or  business  of  such  party,  apparently  acting 
for  him;  or,  (3)  By  properly  folding  the  notice,  directing 
it  to  the  party  to  be  charged,  at  his  place  of  residence, 
according  to  the  best  information  that  the  person  giving 
the  notice  can  obtain,  depositing  it  in  the  post-office  most 
conveniently  accessible  from  the  place  where  the  present- 
ment was  made,  and  paying  the  postage  thereon. 

If  a  foreign  bill  of  exchange  on  its  face  waives  protest, 
notice  of  dishonor  may  be  given  to  any  party  to  it,  in  like 
manner  as  of  an  inland  bill;  but  if  any  indorser  expressly 
requires  protest  to  be  made,  by  a  direction  written  on  the 
bill  at  or  before  his  indorsement,  protest  must  be  made, 
and  notice  of  protest  must  be  given  to  him  and  to  all  sub- 
sequent indorsers. 

One  who  pays  a  foreign  bill. of  exchange  for  honor  must 
declare,  before  payment,  in  the  presence  of  a  person  author- 
ized to  make  protest,  for  whose  honor  he  pays  the  same, 
in  order  to  entitle  him  to  reimbursement. 

Civil  Code,  Sections  3227,  3228,  3229,  3230,  3233. 

Section  658.— DAMAGES  ALLOWED  ON  DIS- 
HONOR OF  BILL  OF  EXCHANGE.— Damages  are  al- 
lowed, as  a  full  compensation,  for  interest  accrued  before 
notice  of  dishonor,  re-exchange,  expenses,  and  all  other 
damages,  in  favor  of  holders  for  value  only,  upon  bills  of 
exchange  drawn  or  negotiated  within  this  State,  and  pro- 
tested for  non-acceptance  or  non-payment.  The  rate  of 
damages  allowed  by  the  law  of  California,  on  dishonor  of 
a  foreign  bill  of  exchange,  is  as  follows:  (1)  If  drawn  upon 
any  person  in  this  State,  two  dollars  upon  each  one  hundred 
dollars  of  the  principal  sum  specified  in  the  bill ;  (2)  If 
drawn  upon  any  person  out  of  this  State,  but  in  any  of 
the  other  States  west  of  the  Rocky  Mountains,  five  dollars 
upon  each  hundred  dollars  of  the  principal  sum  specified 
in  the  bill;  (3)  If  drawn  upon  any  person  in  any  of  the 
United  States  east  of  the  Rocky  Mountains,  ten  dollars 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  389 

upon  each  hundred  dollars  of  the  principal  sum  specified 
in  the  bill;  (4)  If  drawn  upon  any  person  in  any  place  in 
a  foreign  country,  fifteen  dollars  upon  each  hundred  dollars 
of  the  principal  sum  specified  in  the  bill. 

From  the  time  of  notice  of  dishonor  and  demand  of 
payment,  lawful  interest  is  allowed  upon  the  aggregate 
amount  of  the  principal  sum  specified  in  the  bill,  and  the 
damages  mentioned  in  the  preceding  paragraph. 

If  the  amount  of  a  protested  bill  of  exchange  is  expressed 
in  money  of  the  United  States,  damages  are  estimated  upon 
such  amount  without  regard  to  the  rate  of  exchange. 

If  the  amount  of  a  protested  bill  of  exchange  is  expressed 
in  foreign  money,  damages  are  estimated  upon  the  value 
of  a  similar  bill  at  the  time  of  protest,  in  the  place  nearest 
to  the  place  where  the  bill  was  negotiated,  and  where  such, 
bills  are  currently  sold. 

Bank  Checks 

Section  658a.— NATURE  OF  BANK  CHECKS.— In  its 

essential  features  a  bank  check  has  been  sometimes  likened 
to  a  bill  of  exchange,  but  it  is  evident  that  there  are  very 
material  differences  between  them.  A  bill  of  exchange  must 
be  presented  for  acceptance,  and  again  for  payment.  A 
check  is  an  order  to  pay  the  holder  a  sum  of  money  at  a 
bank,  on  the  presentation  of  the  check  and  demand  of  the 
money ;  and  no  further  notice  is  necessary,  no  acceptance  is 
required  or  expected.  It  is  well  said  that  one  radical  dif- 
ference between  a  check  and  a  bill  of  exchange  is,  that  the 
former  need  not  be  accepted,  while  the  latter  must  be,  in 
order  to  fix  the  liability  on  the  drawee.  It  is  requisite  to  a 
check  that  it  be  drawn  on  a  bank  or  banker,  and  that  it  be 
payable  on  demand. 

Section  658b.— DELIVERY  OF  CHECK.— It  is  neces- 
sary that  there  should  be  delivery  of  a  check  before  the 
payee  can  acquire  any  rights  in  it.    The  same  rule  applies 


390  BUSINESS  LAWS  FOE  BUSINESS  MEN. 

to  a  check  which  applies  to  a  note  or  to  a  bill  of  exchange. 
It  is  not  valid  unless  it  has  been  delivered  to  the  payee. 

Section  658c.— NEGOTIABILITY.— A  check  is  a  nego- 
tiable instrument,  when  payable  to  "bearer,"  or  to  the 
"order"  of  a  person. 

Section  658d.— POSSESSION  OF  CHECK.— The  mere 
possession  of  a  check  will  not  justify  a  bank  in  making  pay- 
ment to  the  person  in  possession,  without  some  identifica- 
tion, or  some  evidence  of  genuineness  of  the  indorsement,  if 
an  indorsement  is  in  question. 

Section  658e.— DRAWING  ON  ANTICIPATED 
FUNDS. — A  depositor  in  a  bank  has  a  right  to  draw  his 
check  in  the  reasonable  expectation  that  he  will  have  suffi- 
cient funds,  at  the  time  of  presentment,  to  meet  it.  Hence, 
insufficiency  of  funds,  at  the  time  the  check  is  drawn,  does 
not  affect  the  holder's  right  to  payment,  if  there  are  suffi- 
cient funds  on  hand  when  the  check  is  presented. 

Section  658f.— CERTIFIED  CHECK.— The  certification 
of  a  check,  when  made  before  delivery,  operates  in  favor  of 
third  parties  simply  as  an  assurance  that  it  is  genuine,  and 
will  be  paid.  The  bank  certifying  it  becomes  bound.  Be- 
yond this,  nothing  is  added  to  the  legal  force  or  effect  of 
the  check.  A  bank,  by  certification  of  a  check,  becomes  en- 
titled to  charge  the  amount  thereof  to  the  account  of  the 
drawer  at  the  time  of  certification,  thus  appropriating  to 
the  payment  of  the  check  the  necessary  amount  of  money 
from  the  funds  on  deposit  to  the  credit  of  the  drawer.  By 
certification  of  a  check  the  bank  enters  into  an  absolute 
undertaking  to  pay  it  when  presented,  within  the  period  of 
limitation  of  actions. 

Section  658g.— PRESENTMENT  AND  DEMAND  FOR 
PAYMENT. — A  person  who  takes  a  check  does  so  with  the 
legal  obligation   to   present   it   at  the  bank  for  payment, 


BUSINE5SS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  391 

within  reasonable  time.  A  check  is  not  designed  for  circula- 
tion, but  for  immediate  presentment  for  payment,  and  if  not 
thus  presented  within  a  reasonable  time  according  to  the 
circumstances,  the  indorsers  will  be  released  from  liability 
on  it.  A  check  must  be  presented  for  payment  with  all  the 
dispatch  and  diligence  consistent  with  the  transactions  of 
commercial  concerns. 

Section  658h.— STOPPING  PAYMENT.— The  drawer 
of  a  check  may  stop  payment,  by  notifying  the  bank  on 
which  it  is  drawn  that  payment  is  stopped  and  giving  in- 
struction not  to  pay  it.  In  such  case,  it  is  the  duty  of  the 
bank  to  refuse  payment,  and  give  its  reasons  for  so  doing, 
leaving  the  drawer  and  the  holder  to  settle  the  difficulty 
between  them.  But  there  are  circumstances  where  pay- 
ment cannot  be  stopped.  Payment  can  only  be  stopped 
where  the  check  remains  in  the  hands  of  the  original  holder. 
So,  where  the  original  holder  has  indorsed  the  check  to 
another,  who  received  it  in  good  faith  and  for  value,  pay- 
ment cannot  be  stopped.  And  where  the  check  has  been 
certified,  it  cannot  be  countermanded  by  the  drawer,  be- 
cause it  has  passed  beyond  his  control.  A  check  cahnot  be 
countermanded  by  the  drawer  after  it  has  been  presented 
at  the  bank  for  payment. 

Section  658i.— PAYMENT  OF  CHECK  BY  MISTAKE. 

— A  bank  is  bound  to  know  the  state  of  its  depositor's  ac- 
count ;  and  if  it  makes  a  mistake  in  this  respect  it  must 
abide  the  consequences.  Banks  are  required,  and  for  their 
own  safety  are  compelled,  to  know  at  all  times  the  balance 
to  the  credit  of  each  individual  depositor,  and  they  take  and 
pay  checks  at  their  own  risk  and  peril.  If,  from  negligence 
or  inattention  to  its  own  aflfairs,  a  bank  improvidently  pays 
when  the  account  of  a  customer  is  not  in  condition  to  war- 
rant it,  or  if,  by  mistake,  a  check  is  paid  when  the  drawer 
has  no  funds  in  bank,  it  must  look  to  the  customer  for  rec- 
tification or  repayment,  and  not  to  the  party  to  whom  the 
check  was  paid. 


392  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

Section  658j.— RIGHTS  AND  LIABILITIES  OF  IN- 
DORSERS. — The  rights  and  liabilities  of  indorsers  are  the 
same  as  to  all  negotiable  instruments.  Checks,  bills  of  ex- 
change, and  promissory  notes,  with  respect  to  indorsers,  are 
considered  according  to  the  same  rule.  For  the  law  as  to 
indorsers,  their  rights  and  liabilities,  see  the  subject  of 
"Promissory  Notes,"  where  the  subject  is  fully  treated. 

Section  658k.— REFUSAL  TO  PAY.— A  check  being 
payable  immediately  and  on  demand,  the  holder  can  only 
present  it  for  payment,  and  the  bank  can  fulfill  its  duty  to 
the  depositor  only  by  paying  the  amount  demanded.  The 
holder  has  no  right  to  demand  from  the  bank  anything  but 
payment  of  the  check,  and  the  bank  has  no  right  as  against 
the  drawer,  to  do  anything  but  pay  it.  If  the  bank  refuses 
to  pay  the  check,  when  there  are  funds  sufficient  on  deposit, 
the  holder  has  recourse  against  the  maker  and  the  indorsers, 
and  the  maker,  in  turn,  has  a  right  to  sue  the  bank. 

Section  658  1.— LIABILITY  OF  BANK  TO  DEPOSI- 
TOR FOR  REFUSAL  TO  PAY  CHECKS.— Where  there 
is  money  on  deposit  in  a  bank,  sufficient  to  pay  checks 
drawn  by  the  depositor,  and  the  bank  refuses  to  pay  the 
checks,  the  liability  of  the  bank  is  only  for  the  money 
deposited  and  interest  from  the  date  of  refusal  to  pay.  The 
bank  is  not  liable  in  damages  for  loss  of  credit,  or  sacrifice  of 
goods,  or  expenses  of  litigation,  or  other  injuries  sustained. 

Smiths'  Cash  Store,  of  San  Francisco,  sued  the  First  Na- 
tional Bank  of  San  Francisco  for  $100,000  damages,  the 
plaintiff  alleging  that  it  deposited  with  the  bank  on  a  certain 
date  the  sum  of  $4,000,  and  drew  checks  against  this  deposit 
aggregating  $3,679.55,  which  the  bank  failed  and  refused  to 
pay;  and  that  plaintiff  was  injured  and  damaged  in  its 
credit,  was  compelled  to  sell  goods  at  a  sacrifice,  had  to 
make  an  assignment  of  property,  and  was  compelled  to  pay 
out  large  sums  in  litigation ;  all  by  reason  of  the  bank's 
refusal  to  pay  the  checks.  The  Supreme  Court  decided 
against  the  plaintiff,  on  the  ground  that  it  was  not  entitled 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  393 

to  damages  at  all,  and  that  it  could  only  recover  the  money- 
deposited.  The  decision  says :  "It  is  well  settled  here 
that  the  relation  between  a  general  depositor  and  the 
bank  in  which  his  deposit  is  made  is  simply  that  of  debtor 
and  creditor.  The  moneys  deposited  immediately  become 
the  property  of  the  bank,  and  the  latter  becomes  the  debtor 
of  the  depositor  for  the  amount  of  the  deposit.  The  orig- 
inal and  every  subsequent  deposit  by  the  customer  is  in 
strict  legal  effect  a  loan  by  the  customer  to  the  bank,  and 
every  payment  by  the  bank  to  or  on  account  of  the  cus- 
tomer is  a  repayment  of  the  loans  to  that  extent.  Where- 
fore it  follows  that  the  customer  can  never  hold  or  charge 
the  bank  as  a  trustee,  quasi  trustee,  factor.  Or  agent.  The 
money  placed  In  the  custody  of  a  banker  is,  to  all  intents 
and  purposes,  the  money  of  the  banker,  to  do  with  it  as  he 
pleases;  he  is  guilty  of  no  breach  of  trust  in  employing  it; 
he  is  not  answerable  to  the  principal  if  he  puts  it  into  jeop- 
ardy, if  he  engages  in  a  hazardous  speculation ;  he  is  not 
bound  to  keep  it,  or  deal  with  it  as  the  property  of  his 
principal ;  but  he  is,  of  course,  answerable  for  the  amount, 
because  he  has  contracted,  having  received  that  money,  to 
repay  to  the  principal,  when  demanded,  a  sum  equivalent  to 
that  paid  into  his  hands."  The  defendant  in  this  case  was 
not  liable  in  damages  for  a  conversion  of  plaintiff's  money 
to  its  own  use ;  for  the  money  deposited  by  plaintiff  became, 
by  such  deposit,  the  property  of  defendant,  and  the  latter 
could  not  convert  its  own  money.  (Decided  by  the  Su- 
preme Court  of  the  State  of  California,  in  the  case  of 
Smiths'  Cash  Store  vs.  First  National  Bank  of  San  Fran- 
cisco, which  decision  is  printed  in  Volume  31  of  California 
Decisions,  No.  1686,  page  307.) 

Section  658m.— FORGED  CHECKS.- -If  a  bank  pays  a 
forged  check,  whether  the  forgery  be  in  the  amount  of  the 
check,  or  in  the  signature,  it  cannot  deduct  the  amount  so 
paid  from  the  depositor's  account.  A  bank  is  bound  to 
know  the  handwriting  and  the  signature  of  its  depositors, 


394  BUSINESS  IjAws  for  business  men. 

and  it  takes  all  the  risk  of  paying  a  check  which  is  a  forgery. 
If  it  does  pay  a  forged  check  it  will  have  to  stand  the  loss. 

It  is  the  duty  of  the  depositor  to  promptly  notify  the 
bank  of  the  discovery  of  a  forged  check,  and  negligence  on 
the  part  of  the  depositor  in  this  respect  may  be  used  by 
the  bank  as  a  defense,  if  sued  for  money  which  it  has  paid 
out  on  forged  checks.  Where  a  bank  balances  a  depositor's 
pass  book,  containing  a  debit  against  him  for  a  payment 
made  on  a  forged  check,  and  returns  the  book  to  him  at  the 
same  time,  this  constitutes  a  statement  of  his  account,  mak- 
ing it  his  duty  to  examine  it  within  a  reasonable  time,  and 
to  return  it  to  the  bank  without  unreasonable  delay,  with 
notice  of  his  objections  to  it.  Where,  in  any  case,  the  de- 
positor gives  notice  to  the  bank  of  the  forgery  as  soon  as 
possible  after  detecting  it,  and  without  unreasonable  delay 
in  the  examination  of  his  accoimts,  the  forgery  of  his  check 
is  wholly  inoperative,  and  gives  no  rights  to  the  bank  which 
pays  it;  on  the  contrary,  the  depositor,  if  the  bank  insists 
on  debiting  his  account  with  the  amount  paid  out  on  a 
forged  check,  can  sue  the  bank  and  recover  the  money  from 
it. 

Section  658n.  —  FORGED  INDORSEMENTS.  —  The 
drawer  of  a  check  is  not  presumed  to  know  the  signature  of 
the  payee.  The  bank  must  at  its  peril  determine  the  genu- 
ineness of  the  signature  of  indorsers.  When,  therefore,  a 
bank  returns  to  its  depositor  a  check,  as  evidence  of  a  pay- 
ment made  by  his  direction,  he  has  the  right  to  assume  that 
the  bank  has  ascertained  the  indorsement  upon  it  to  be 
genuine.  A  bank  is  bound  to  satisfy  itself  of  the  genuine- 
ness of  indorsements  on  a  check  made  payable  to  a  certain 
person  or  order,  and  must  alone  bear  the  responsibility  of 
determining  that  question. 

Section  658  o.  —  GARNISHMENT  OF  MONEY  ON 
DEPOSIT. — A  check  is  not  an  assignment  of  the  funds 
upon  which  it  is  drawn,  and  there  is  no  obligation  of  a 
bank  to  the  holder  of  a  check  of  a  depositor  until  the  check 


BUSINESS   CONTRACTS  AND   LEGAL  OBLIGATIONS.  395 

is  presented  for  payment.  The  delivery  of  a  check  does  not 
operate  as  an  assignment  of  the  funds  drawn  upon;  and 
where  the  funds  are  garnished  as  those  of  the  drawer, 
before  the  check  is  presented  for  payment,  the  garnishment 
will  hold.  An  ordinary  uncertified  check  upon  a  general 
bank  account  is  neither  a  legal  nor  an  equitable  assignment 
of  any  part  of  the  sum  standing  to  the  credit  of  the  deposi- 
tor, and  confers  no  right  upon  the  payee  which  he  can 
enforce  against  the  bank.  A  check  is  simply  an  order  which 
may  be  countermanded  and  payment  forbidden  by  the 
drawer  at  any  time  before  it  is  actually  cashed.  Therefore, 
any  attaching  creditor  of  the  depositor  will  hold  the  funds, 
by  serving  a  garnishment  upon  the  bank  before  a  check 
given  another  for  the  money  deposited  has  been  presented 
for  payment  at  the  bank.  (Decided  by  the  Supreme  Court 
in  the  case  of  Donohoe-Kelly  Banking  Company  vs.  South- 
ern Pacific  Company,  which  decision  is  printed  in  Volume 
25,  No.  1350,  California  Decisions,  page  60.) 

Section  658p.— LIABILITY  OF  BANK  FOR  PAY- 
MENT OF  CHECK  AFTER  DEATH  OF  DRAWER.— 

The  delivery  of  a  check,  with  instructions  not  to  present  it 
for  payment  until  after  the  death  of  the  drawer,  does  not 
operate  as  an  assignment  of  the  funds  drawn  upon,  and  is 
not  valid  as  a  gift ;  and  where  the  bank  pays  the  check  after 
the  drawer's  death,  an  action  will  lie  against  the  bank  to 
recover  the  money  for  the  estate  of  the  decedent.  (Decided 
by  the  Supreme  Court  in  the  case  of  Pullen  vs.  Placer 
County  Bank,  which  decision  is  printed  in  Volume  25,  No. 
1349,  California  Decisions,  page  51.) 

Section  658q.— DRAWING  CHECK  WITH  INTENT 
TO  DEFRAUD. — Every  person  who,  wilfully,  with  intent 
to  defraud,  draws  or  delivers  to  another  person  any  check 
or  draft,  on  a  bank,  knowing  at  the  time  that  he  has  not 
sufficient  funds  in  or  credit  with  the  bank  to  meet  such 
draft  or  check  in  full  upon  its  presentation,  is  guilty  of 


396  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

a  felony.    The  punishment  is  fixed  at  not  less  than  one  nor 
more  than  fourteen  years  in  the  State  Prison. 

Act  of  the  Legislature,  approved  March  19,  1907. 

Assignment  for  Benefit  of  Creditors 

Section  659.— ASSIGNMENT  BY  INSOLVENT  DEB- 
TOR.— An  insolvent  debtor  may  in  good  faith  execute 
an  assignment  of  his  property  in  trust  for  the  benefit  of 
his  creditors  and  the  satisfaction  of  their  claims.  Every 
assignment  must  be  in  writing,  and  must  contain  a  list  of 
the  names  of  the  creditors  of  the  assignor,  and  their  places 
of  residence  and  amounts  of  their  respective  demands,  and 
the  amounts  and  nature  of  any  security  therefor,  and  must 
be  made  to  the  Sheriff  of  the  county,  or  city  and  county, 
wherein  the  assignor  resides,  if  the  assignor  resides  within 
this  State ;  or  in  case  the  assignor  resides  out  of  this  State, 
then  to  the  Sheriff  of  the  county,  or  city  and  county, 
wherein  the  property  assigned,  or  some  of  it,  is  situated : 
but  when  the  assignor  resides  out  of  the  State,  an  assign- 
ment may,  by  its  terms,  transfer  any  property  of  the  as- 
signor in  this  State.  The  Sheriff  must  take  possession  of 
all  the  property  so  assigned  to  him.  When  the  assignment 
has  been  made,  the  Sheriff  must  immediately,  by  mail  notify 
the  creditors  named  in  the  assignment,  at  their  places  of 
business  or  residence  as  given  therein,  to  meet  at  his  office 
on  a  day  and  hour  to  be  appointed  by  him,  of  not  less  than 
eight  or  more  than  ten  days  from  the  date  of  the  delivery 
of  the  assignment  to  him,  for  the  purpose  of  electing  one 
or  more  assignees,  as  they  may  determine,  in  the  place  and 
stead  of  the  Sheriff,  and  must  also  publish  a  notice  of  such 
meeting,  and  the  purpose  thereof,  at  least  once  before  such 
meeting,  in  some  newspaper  published  in  his  county,  or 
city  and  county.  The  notice  so  to  be  mailed  must  also 
contain  a  statement  of  the  amount  of  the  demand  of  the 
creditor,  and  the  amount  and  nature  of  any  security  there- 
for, as  set  forth  in  the  assignment ;  and  if  any  creditor  shall 
not  find  the  amount  of  his  claim  to  be  correctly  so  stated. 


BUSINESS   CONTRACTS  AND   LEGAL   OBLIGATIONS.  397 

he  may  file  with  the  Sherifif,  at  or  before  such  meeting, 
a  statement,  under  oath,  of  his  demand,  and  such  state- 
ment shall,  for  the  purpose  of  voting,  be  accepted  by  the 
Sheriff  as  correct;  and  when  no  such  statement  is  filed, 
the  statement  of  amount  as  set  forth  in  the  assignment 
must  be  accepted  by  the  Sheriff  as  correct.  No  creditor 
having  a  mortgage  or  pledge  of  real  or  personal  property 
of  the  debtor,  or  lien  thereon,  for  securing  the  payment 
of  a  debt  owing  to  him  from  the  debtor,  shall  be  allowed 
to  vote  any  part  of  his  claim  at  such  meeting  of  creditors, 
unless  he  shall  have  first  conveyed,  released,  or  delivered 
up  his  security  to  the  Sheriff,  for  the  benefit  of  all  creditors 
of  the  assignor.  At  such  meeting,  the  Sheriff  must  preside, 
?.nd  a  majority  in  amount  of  demands  present  or  repre- 
sented by  proxy  must  control  all  questions  and  decisions. 
The  creditors  may  adjourn  the  meeting  from  time  to  time, 
and  may  vote  on  all  questions,  either  in  person,  or  by 
proxy  signed  and  acknowledged  before  any  officer  author- 
ized to  take  acknowledgments,  and  filed  with  the  Sheriff. 
At  the  meeting,  the  creditors  may  elect  one  or  more  as- 
signees from  their  own  number,  in  the  place  and  stead  of 
the  Sheriff,  and  the  person  or  persons  so  elected  shall  after- 
ward be  the  assignee  or  assignees ;  and  the  Sheriff,  by 
transfer  in  writing,  must  at  once  assign  to  such  elected  as- 
signee or  assignees  all  the  property  so  assigned  to  him, 
and  deliver  possession  thereof.  The  Sheriff,  before  the 
delivery  of  the  assignment,  must  be  paid  the  expenses  in- 
curred by  him,  and  fees  in  such  amount  as  would  by  law  be 
collectible  if  the  property  assigned  had  been  levied  upon 
and  safely  kept  under  attachment.  Thereupon  such  elected 
assignee  or  assignees  shall  take,  and  hold,  and  dispose  of 
all  such  property  and  its  proceeds,  for  the  benefit  of  the 
creditors  of  the  debtor. 

Civil  Code,  Section  3449. 

Section  660.— WHAT  IS  INSOLVENCY.— A  debtor  is 
insolvent,  within  the  meaning  of  the  law,  when  he  is  unable 
to  pay  his  debts  from  his  own  means,  as  they  become  due. 


398  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

But  a  person,  although  insolvent,  is  not  prevented  by  the 
law  from  transferring,  and  may  lawfully  transfer  property 
in  this  State  to  a  particular  creditor  or  creditors,  for  the 
purpose  of  paying  or  securing  a  debt  due,  provided  the 
transfer  is  made  in  good  faith. 

Section  661.— VOID  ASSIGNMENT.— An  assignment 
for  the  benefit  of  creditors  is  void  against  any  creditor  of 
the  assignor  not  assenting  thereto,  in  the  following  cases: 
(1)  If  it  give  a  preference  of  one  debt  or  class  of  debts 
over  another;  (2)  If  it  tend  to  coerce  any  creditor  to  re- 
lease or  compromise  his  demand;  (3)  If  it  provide  for  the 
payment  of  any  claim  known  to  the  assignor  to  be  false 
or  fraudulent,  or  for  the  payment  of  more  upon  any  claim 
than  is  known  to  be  justly  due  from  the  assignor;  (4)  If 
it  reserve  any  interest  in  the  assigned  property,  or  in  any 
part  thereof,  to  the  assignor,  or  for  his  benefit,  before  all 
his  existing  debts  are  paid ;  (5)  If  it  confer  upon  the  as- 
signee any  power  which,  if  exercised,  might  prevent  or 
delay  the  immediate  conversion  of  the  assigned  property  to 
the  purposes  of  the  trust;  (6)  If  it  exempt  him  from  liability 
for  neglect  of  duty  or  misconduct. 
Civil  Code,  Section  3457. 

Section  662.~INVENTORY  TO  BE  MADE  BY 
DEBTOR. — Within  twenty  days  after  making  an  assign- 
ment for  the  benefit  of  his  creditors,  the  debtor  must  make 
and  file,  in  the  office  of  the  County  Recorder  of  the  county 
in  which  he  resided  at  the  date  of  the  assignment,  a  full 
and  true  inventory  showing:  (1)  All  the  creditors  of  the 
assignor;  (2)  The  place  of  residence  of  each  creditor,  if 
known  to  the  assignor;  or,  if  not  known,  that  fact  must 
be  stated ;  -  (3)  The  sum  owing  to  each  creditor,  and  the 
nature  of  each  debt  or  liability,  whether  arising  on  written 
security,  account,  or  otherwise ;  (4)  The  true  consideration 
of  the  liability  in  each  case,  and  the  place  where  it  arose; 
(5)  Every  existing  judgment,  mortgage,  or  other  security 
for  the  payment  of  any  debt  or  liability  of  the  assignor; 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  399 

(6)  All  property  of  the  assignor  at  the  date  of  the  assign- 
ment, which  is  exempt  by  law  from  execution ;  and,  (7)  All 
of  the  assignor's  property  at  the  date  of  the  assignment, 
both  real  and  personal,  of  every  kind,  not  so  exempt,  and 
the  encumbrances  existing  thereon,  and  all  vouchers  and 
securities  thereto,  and  the  value  of  such  property  accord- 
ing to  the  best  knowledge  of  the  assignor. 

The  inventory  must  be  sworn  to  by  the  assignor. 
Civil  Code,  Section  3461. 

Section   663.— FAILURE   TO    FILE   INVENTORY.— 

A  failure  on  the  part  of  a  debtor  to  make  and  file  the 
inventory  mentioned  in  the  last  Section  does  not  render 
the  assignment  void.  The  law  provides  that  if  the  debtor 
fails  in  his  duty  to  file  the  inventory,  the  assignees  may 
make  and  file  for  record  a  verified  inventory  of  all  assets 
received  by  them ;  and  the  court,  on  petition  of  the  assignee, 
will  compel  the  debtor  to  appear  and  be  examined  relative 
to  all  matters  embraced  in  the  assignment,  and  will  also 
compel  him  to  bring  with  him  into  court  all  his  books, 
vouchers,  and  papers  relating  to  the  assigned  property. 
The  court  will  then  have  power  to  order  the  surrender  of 
the  books,  papers,  and  vouchers  to  the  assignee,  to  be  re- 
tained by  him  until  his  trust  is  fully  completed  and  per- 
formed. 

Section  664,— EFFECT  OF  FAILURE  TO  RECORD 
ASSIGNMENT. — An  assignment  for  the  benefit  of  credit- 
ors is  void  against  creditors  of  the  assignor,  and  against 
purchasers  and  encumbrancers  in  good  faith  and  for  value, 
unless  it  is  recorded,  and  unless  either  the  inventory  re- 
quired of  the  assignor,  or  the  inventory  required  of  the' 
assignee  or  assignees,  is  filed  in  the  manner  provided  by 
law. 

Civil  Code,  Section  3465. 

Section  665.— BOND  OF  ASSIGNEE.— No  bond  is 
given  by  the  Sheriff,  but  he  is  liable  on  his  official  bond 


400  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

for  the  care  and  custody  of  the  property  while  in  his  pos- 
session. Within  forty  days  after  the  date  of  the  transfer  by 
the  Sheriflf,  the  assignee  must  enter  into  a  bond,  in  such 
amount  as  may  be  fixed  by  a  judge  of  the  Superior  Court 
of  the  county,  or  city  and  county,  in  which  an  inventory 
is  filed,  with  sufficient  sureties  to  be  approved  by  such 
judge,  and  conditioned  for  the  faithful  discharge  of  the 
trust  and  the  due  accounting  for  all  moneys  received  by 
the  assignee,  which  bond  must  be  filed  in  the  same  office 
with  the  inventory ;  and  any  assignee  failing  to  give  such 
bond  may  be  removed  by  the  Superior  Court  on  petition 
of  the  assignor  or  any  creditor,  and  his  successor  may  be 
appointed  by  the  court. 

Civil  Code,  Section  3467. 

Section   666.— ACCOUNTING   BY   ASSIGNEE.— After 

six  months  from  the  date  of  an  assignment  for  the  benefit 
of  creditors,  the  assignee  may  be  required,  on  the  petition 
of  any  creditor,  to  account  before  the  Superior  Court  of 
the  county  where  the  inventory  was  filed.  The  assignee's 
account,  when  rendered,  must  make  a  full  and  true  showing 
of  all  his  acts  with  relation  to  the  property  assigned  to  him. 

Section  667.— PROPERTY  EXEMPT  FROM  AS- 
SIGNMENT.— Property  exempt  from  execution,  and  in- 
surance upon  the  life  of  the  assignor,  do  not  pass  to  the 
assignee  by  a  general  assignment  for  the  benefit  of  credit- 
ors, unless  the  instrument  specially  mentions  them,  and 
declares  an  intention  that  they  shall  pass  thereby. 
Civil  Code,  Section  3470. 

Section    668.— COMPENSATION    OF    ASSIGNEE.— 

The  assignee  is  entitled  to  a  reasonable  compensation  for 
his  services,  and  also  to  all  necessary  expenses  incurred 
by  him  in  the  management  of  his  trust. 

Section  669.— ASSIGNEE  PROTECTED   FOR  ACTS 
DONE  IN  GOOD  FAITH. — The  assignee  is  protected  for 


BUSINESS   CONTRACTS   AND   LEGAL   OBLIGATIONS.  401 

acts  done  in  good  faith,  and  will  not  be  held  liable  for  such 
acts  if  the  assignment  is  afterward  declared  by  a  court  to 
be  void. 

Section   670.— ASSIGNMENT    NOT   REVOCABLE.— 

An  assignment  for  the  benefit  of  creditors,  which  has  been 
executed  and  recorded  so  as  to  transfer  the  property  to 
the  Sheriff,  or  a  transfer  by  the  Sheriflf  to  the  elected  as- 
signee or  assignees  which  has  been  executed  and  recorded, 
cannot  afterward  be  modified  or  canceled  by  the  parties 
without  the  consent  of  the  assignor  and  of  every  creditor. 
Civil  Code,  Section  3473. 

Section  671.— CREDITORS'   CLAIMS.— Notice  to  the 

creditors  must  be  published  by  the  assignee,  and  a  copy 
mailed  by  him  to  each  creditor,  and  the  creditors  must 
prove  their  claims;  and  after  the  expiration  of  thirty  days 
from  the  first  publication  of  the  notice,  the  assignee  may, 
in  his  discretion,  declare  and  pay  dividends  to  the  creditors 
whose  claims  have  been  presented  and  allowed.  No  divi- 
dend already  declared  shall  be  disturbed  by  reason  of 
claims  being  subsequently  presented  and  allowed ;  but  the 
creditor  presenting  such  claim  shall  be  entitled  to  a  dividend 
equal  to  the  per  cent  already  declared  and  paid  before  any 
further  dividend  is  made ;  provided,  however,  that  there  be 
assets  sufficient  for  that  purpose;  and  provided,  that  the 
failure  to  present  such  claim  shall  not  have  resulted  from 
his  own  neglect,  and  the  creditor  shall  attach  to  such  claim 
a  statement,  under  his  oath,  showing  fully  why  it  was  not 
before  presented. 

Section  672.— CREDITOR  HOLDING  MORTGAGE 
OR  PLEDGE. — When  a  creditor  has  a  mortgage,  or  a 
pledge  of  personal  property  of  the  debtor,  or  a  lien  thereon 
as  security  for  the  payment  of  a  debt  due  him  from  the 
debtor,  and  shall  not  have  conveyed,  released,  or  delivered 


402  BUSINESS   TiAWS   FOR   BUSINESS    MEN. 

up  such  security  to  the  Sheriff,  he  shall  be  admitted  as  a 
creditor  only  for  the  balance  of  the  debt,  after  deducting 
the  value  of  such  mortgage,  pledge,  or  lien,  to  be  ascer- 
tained by  agreement  between  him  and  the  assignee,  or  by 
a  sale  thereof,  to  be  made  in  such  manner  as  the  Superior 
Court  of  the  county  in  which  the  assignment  is  made  shall 
direct ;  or  the  creditor  may  release  or  convey  his  claim 
to  the  assignee  upon  such  property,  and  be  admitted  to 
prove  his  whole  debt.  If  the  value  of  the  property  ex- 
ceeds the  sum  for  which  it  is  so  held  as  security,  the 
assignee  may  release  to  the  creditor  the  debtor's  right  of 
redemption  on  receiving  such  excess ;  or  he  may  sell  the 
property,  subject  to  the  claim  of  the  creditor,  and  in  either 
case  the  assignee  and  creditor,  respectively,  shall  execute 
all  deeds  and  writings  necessary  or  proper  to  consummate 
the  transaction.  If  the  property  is  not  sold  or  released, 
and  delivered  up,  the  creditor  will  not  be  allowed  to  prove 
any  part  of  his  debt. 


PART  II 

COLLECTION  OF  BILLS  AND  ACCOUNTS 

Section  673.— METHODS  OF  MAKING  COLLEC- 
TIONS.— Custom  will  control  to  a  great  extent  the  meth- 
ods of  making  collections  in  force  in  different  localities, 
but  whether  collections  be  made  monthly,  quarterly,  semi- 
annually, or  annually,  there  are  certain  provisions  of  the 
law  of  the  State  which  apply  to  all  methods,  and  which 
must  constantly  be  kept  in  mind.  Whether  a  creditor  col- 
lects his  bills  monthly,  or  at  longer  intervals  of  time,  the 
law  leaves  to  his  own  choice.  The  parties  may  contract  for 
payment  at  any  time  or  place,  and  the  law  will  enforce  the 
contract. 

Section  674.— PRESENTMENT  OF  BILLS  OR 
STATEMENTS  OF  ACCOUNT.— The  debtor  is  entitled 
to  have  a  bill  or  statement  of  account,  showing  the  claim 
of  his  creditor.  This  is  usual  in  every  business,  and  it  is 
more  necessary  in  commercial  affairs  than  in  any  other,  for 
the  book  accounts  of  sales  of  merchandise,  and  other  similar 
commercial  transactions,  are  usually  kept  by  the  creditor 
alone. 

Section  675.— ITEMIZED  ACCOUNT.— When  a  bill 
has  been  presented  which  is  not  itemized,  the  debtor  has 
a  right  to  demand  of  the  creditor  an  itemized  account,  show- 
ing in  detail  all  the  items  of  the  claim  presented  to  him. 

Section  676.— OPEN  AND   CURRENT  ACCOUNT.— 

An  open  account  is  an  account  where  no  balance  has  been 
struck.  Until  a  balance  is  struck,  even  though  there  have 
been  mutual  dealings  between  the  parties,  the  account  is 
open  and  current. 

(403) 


404  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

Section  67/.— WHEN  OPEN  ACCOUNT  OUTLAWS. 

— An  open  account  will  outlaw  in  four  years.  That  is,  if 
there  is  a  claim,  for  goods  purchased,  for  instance,  upon 
an  open  account,  all  items  dating  back  more  than  four  years 
will  be  outlawed,  and  in  a  suit  for  the  amount  of  the  bill 
the  plaintiff  cannot  recover  for  any  item  more  than  four 
years  old.  So,  in  a  suit  for  work  or  labor  performed  by  the 
day  or  month,  where  there  has  not  been  a  mutual  account, 
no  part  can  be  collected  except  for  the  work  done  within 
four  years. 

Code  of  Civil  Procedure,  Section  337  (as  amended  by 
Legislature  March  19,  1907). 

Section  678.— MUTUAL  ACCOUNT.— To  constitute  a 
mutual  account  there  must  be  reciprocal  demands.  An 
account  is  mutual  when  each  party  makes  charges  against 
the  other  in  his  books  for  property  sold,  service  performed, 
or  money  loaned  or  advanced.  A  payment  on  account  will 
not  make  the  account  mutual.  Mutual  accounts  are  only 
where  each  party  has  a  demand  or  right  of  action  against 
the  other.  Thus,  where  a  merchant  sells  a  farmer  goods, 
and  the  latter  sells  and  delivers  to  the  merchant,  hay,  grain, 
or  a  horse,  or  any  other  article  of  personal  property,  in  the 
ordinary  course  of  business,  he  has  a  demand  against  the 
merchant,  and  the  merchant  has  a  demand  against  him, 
and  thus  the  account  between  them  is  a  mutual  account. 
In  the  course  of  mutual  dealings  between  parties,  the  bal- 
ance due  may  sometimes  be  on  the  one  side  and  sometimes 
on  the  other,  and  in  the  ascertainment  of  the  state  of  ac- 
count, each  may  use  his  own  demands  as  set  off  against 
•that  of  the  other  until  the  less  is  exhausted  by  the  greater. 
Where  it  appears,  first,  that  the  account  between  the  parties 
consists  of  reciprocal  demands ;  second,  that  the  account  is 
open ;  and  third,  that  the  account  consists  of  different  items 
of  different  dates;  it  is  then  said  to  be  a  mutual,  open,  and 
current  account. 


COLLECTION  OF  BILLS  AND  ACCOUNTS.  405 

Section  679.— WHEN  MUTUAL  ACCOUNT  OUT- 
LAWS.— A  suit  may  be  brought  on  a  mutual  account  at 
any  time  within  four  years  from  the  date  of  the  last  item 
proved  in  the  account  on  either  side.  When  any  item  of 
a  mutual  account  is  within  the  four  years,  none  of  the  ac- 
count is  outlawed,  though  some  of  the  items  may  be  more 
than  four  years  old. 

Code  of  Civil  Procedure,  Section  337  (as  amended  by 
Legislature  March  19,  1907). 

Section  680.— STATED  ACCOUNT.— An  account  stated 
is  where  an  account  is  balanced  and  rendered,  and  the 
person  to  whom  it  is  rendered  assents  to  it  as  being  a  cor- 
rect statement  of  the  balance  due,  and  agrees  to  pay  it. 
The  stated  account  is  usually  in  writing,  but  under  cer- 
tain circumstances  it  may  be  verbal.  Where  there  is  an 
open  account,  and  the  parties  meet  and  agree  orally  before 
any  portion  of  the  account  is  outlawed  upon  the  balance 
that  is  due,  and  there  is  an  agreement  to  pay  such  balance, 
this  will  be  good  as  an  account  stated.  The  assent  to  an 
account  stated  by  the  person  to  whom  it  is  rendered  may 
be  expressly  and  directly  given,  or  such  assent  may  be  in- 
ferred from  circumstances.  If  the  person  receiving  the 
statement  makes  no  objection  to  it,  and  holds  it  for  a  long 
time  apparently  satisfied  with  it,  his  assent  to  it  will  be 
inferred.  ^ 

Section  681.— WHEN  STATED  ACCOUNT  OUT- 
LA  V/S. — When  the  parties  have  stated  and  adjusted  their 
accounts,  and  thus  ascertained  the  balance,  what  was  be- 
fore an  implied  promise  to  pay  what  was  reasonable,  by 
such  adjusting  and  stating  of  accounts,  at  once  becomes 
an  expressed  promise  to  pay  a  sum  certain.  Therefore,  in 
a  suit  to  recover  the  amount  due,  the  items  of  the  original 
account  are  no  longer  referred  to.  The  account  is  at  an 
end,  in  fact.  The  parties  have  agreed  upon  a  balance  due, 
which  one  has  promised  to  pay  the  other.  The  right  to 
commence  a  suit  for  the  amount  due,  upon  a  stated  account, 


406  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

runs  four  years  after  the  time  when  the  account  was  stated, 
and  if  suit  is  not  commenced  within  four  years,  the  debt 
will  be  outlawed. 

Code  of  Civil  Procedure,  Section  337   (as  amended 
by  Legislature  March  19,  1907). 

Section  682.— INTEREST  ON  A  STATED  ACCOUNT. 

— The  uniform  custom  of  a  merchant  or  manufacturer  is 
presumed  to  be  known  to  those  who  are  in  the  habit  of  deal- 
ing with  him,  and  in  their  dealings  they  are  supposed  to 
act  *with  reference  to  that  custom.  When  it  is  the  uni- 
versal custom  of  a  merchant  to  charge  interest  after  thirty 
days  upon  monthly  balances  due  upon  open  accounts,  and 
where  such  an  account  showing  the  interest  charged  up 
regularly  is  received  by  the  debtor  and  fully  understood 
by  him,  and  where  such  account  becomes  stated,  either  by 
the  prolonged  failure  of  the  debtor  to  object  or  by  a  set- 
tlement between  the  parties,  the  debtor  is  bound  to  pay 
the  balance  found  due,  including  the  interest  charged. 

Section    683.— ASSIGNMENT  FOR  COLLECTION.— 

An  open  account,  a  mutual  account,  or  an  account  stated, 
may  be  assigned  to  a  third  person  for  collection.  No  money 
need  be  paid  for  the  assignment.  The  consideration  will 
be  sufficient  to  sustain  the  assignment,  if  the  person  to 
whom  the  account  is  assigned  undertakes  on  his  part  to 
make  collection.  If  the  assignee  brings  suit  on  the  account, 
and  the  debtor  makes  the  defense  that  there  was  no  con- 
sideration for  the  assignment,  it  will  be  a  sufficient  answer 
to  that  defense  to  show  that  the  account  was  assigned  for 
collection. 

Section  684.— ASSIGNEE  MAY  SUE  IN  HIS  OWN 
NAME. — The  assignee  for  collection  may  bring  the  suit  in 
his  own  name.  The  law  of  California  provides  that  every 
suit  must  be  brought  in  the  name  of  the  real  party  in  inter- 
est ;  but  the  assignee  for  collection  must  contribute  his  labor 


COLLECTION  OF  BILLS  AND  ACCOUNTS.  407 

and  services,  and  his  presumed  undertaking  and  promise  to 
do  SO  is  a  sufficient  consideration  for  the  assignment  to 
enable  him  to  sue  in  his  own  name. 

Section  685.— ASSIGNMENT  MAY  BE  VERBAL  OR 
WRITTEN. — The  assignment  of  an  account,  open,  mutual, 
or  stated,  may  be  made  verbally  or  in  writing.  If  is  usual 
to  make  such  assignments  in  writing,  because  this  of  itself 
affords  documentary  proof  of  the  assignment;  but  a  verbal 
assignment  will  be  sufficient,  where  the  proof  is  conclusive. 

Section  686.— ASSIGNMENT  BY  ONE  PARTNER  OF 
PARTNERSHIP  ACCOUNT.— One  partner  may  make 
an  assignment  of  a  partnership  account,  in  the  name  of 
the  firm,  and  the  assignment  will  be  good.  It  is  of  no  con- 
sequence to  the  debtor,  as  it  in  no  respect  affects  his  lia- 
bility, whether  the  assignment  was  made  at  one  time  or 
another,  or  with  or  without  consideration,  or  by  one  or 
by  all  the  members  of  the  firm.  One  member  of  a  firm 
may  even  assign  a  partnership  claim,  in  the  name  of  the 
firm,  to  himself  individually,  and  this  will  be  sufficient  to 
enable  him  to  sue  on  it,  if  the  other  partners  do  not  object. 
The  other  partners  making  no  objections,  the  debtor  will 
not  be  allowed  to  do  so. 

Section  687.— COLLECTION  OF  ACCOUNTS  WHEN 
BOOKS  ARE  LOST.— Though  the  books  in  which  the 
accounts  were  kept  are  lost,  from  whatever  cause,  by  fire, 
or  theft,  or  by  being  mislaid,  yet  the  accounts  can  be  col- 
lected, if  they  can  be  proved  in  some  other  way.  First,  the 
loss  of  the  books  of  original  entry  must  be  shown,  and 
diligent  search  to  find  them ;  then,  the  accounts  may  be 
proved  by  producing  other  books  into  which  they  were 
copied  from  the  original  entry  book,  or,  if  none  such  exist, 
by  the  verbal  testimony  of  bookkeepers,  agents,  clerks, 
proprietors,  or  any  one  who  may  know  what  the  accounts 
consisted  of. 


408  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

Section  688.— WHAT  DEBTOR  MAY  SET  OFF 
AGAINST  ASSIGNED  ACCOUNT.— When  the  assignee 
of  an  account  sues  to  recover  the  amount  due,  the  debtor 
may  set  off  against  the  claim  any  claim  which  he  had 
against  the  creditor  himself  at  the  time  of  the  assignment, 
or  before  notice  to  him  of  the  assignment.  But  his  claim 
must  be  one  upon  which  he  could  have  maintained  an  in- 
dependent action,  and  be  one  of  contract ;  for  he  could  not, 
in  a  suit  against  him  upon  an  account,  brought  by  either 
the  creditor  or  his  assignee,  defend  by  setting  up  a  demand 
for  damages  for  a  wrong  suffered  by  him. 

Code  of  Civil  Procedure,  Section  368. 

Section  689.— AUTHORITY  OF  AGENT  IN  MAKING 
COLLECTIONS.— The  authority  of  agents  in  making 
collections  will  be  equal  to  the  power  actually  or  ostensibly 
delegated  to  them  by  the  principal.  If  the  debtor  is  in- 
formed by  the  creditor  that  a  certain  person  or  a  bank  is 
his  agent  to  make  collections,  there  can  seldom  be  any 
danger  in  inferring  full  and  extensive  authority  on  the  part 
of  the  agent  to  do  everything  necessary  in  and  about  the 
collection.  But  it  often  happens  that  the  authority  of  the 
agent,  and  the  extent  of  his  powers,  must  be  ascertained, 
not  by  any  direct  communication  from  the  creditor,  but 
from  a  long-continued  course  of  dealing  or  custom  of  trade. 
If  an  agent  for  collection  has  been  in  the  habit  of  collect- 
ing in  a  certain  manner,  or  of  making  discounts  upon  cer- 
tain accounts,  or  has  collected  regularly  for  the  same  firm 
or  person  at  a  particular  place  for  a  long  time,  these  facts 
being  known,  it  will  be  presumed  that  he  has  authority 
from  his  principal  coextensive  with  his  acts. 

Section  690.— RATIFICATION   OF  AGENT'S  ACTS. 

— Even  though  one  who  represents  himself  as  an  agent  to 
make  collections  really  has  no  such  authority,  the  creditor 
for  whom  the  collection  is  made  may  so  conduct  himself 
as  to  create  a  ratification  of  the  agent's  acts.     Thus,  if  he 


COLLECTION  OF  BILLS  AND  ACCOUNTS.  409 

receives  the  proceeds  from  the  agent,  or  knows  of  the  man- 
ner of  collection  and  makes  no  objection,  or  in  any  way 
leads  the  debtor  to  believe  that  he  is  satisfied  with  the 
agent's  conduct,  he  will  be  deemed  to  have  ratified  the  acts 
of  the  agent,  and  thus  bind  himself. 

Section  691.— AGENT'S  COMMISSIONS  UPON  COL- 
LECTIONS.— The  law  leaves  the  agent's  commissions 
upon  collections  made  by  him  to  be  regulated  by  the  agree- 
ment of  the  parties.  But  if  a  creditor  sends  a  bill  or  ac- 
count to  an  agent,  with  instructions  to  collect  the  same 
from  the  debtor,  and  the  agent  proceeds  to  make  the  col- 
lection, and  nothing  is  said  about  the  agent's  compensation, 
there  will  be  an  implied  obligation  on  the  part  of  the  cred- 
itor to  pay  the  agent  a  reasonable  commission.  What  is 
a  reasonable  commission  will  depend  upon  circumstances, 
taking  into  consideration  the  nature  of  the  collection,  the 
amount  of  labor  and  skill  employed,  and  the  amount  usually 
paid,  if  there  is  any  custom,  for  such  collections  in  the 
particular  locality  or  business. 

Section  692.— COLLECTION  OF  BILLS  AND  AC- 
COUNTS WHEN  DEBTOR  IS  DEAD.— When  the 
debtor  is  dead,  a  claim  upon  the  account  must  be  presented 
to  his  Administrator  or  Executor,  within  four  months  from 
the  first  publication  of  notice  to  creditors,  if  the  estate  is 
appraised  at  less  than  $10,000,  or  within  ten  months  from 
the  first  publication  of  notice  to  creditors,  if  the  estate  is 
appraised  at  $10,000  or  over.  The  claim  must  be  allowed 
and  approved  by  the  Administrator  or  Executor  and  the 
Judge  of  the  Superior  Court.  If  the  claim  is  not  allowed, 
the  creditor  can  then  sue  the  Administrator  or  Executor, 
as  the  case  may  be. 

Section  693.— SUIT  IN  JUSTICE  COURT  ON  BILLS 
AND  ACCOUNTS.— A  suit  to  collect  the  amount  of  a  bill 
or  account  must  be  brought  in  the  Justice  Court,  when  the 


410  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

amount  is  less  than  $300,  exclusive  of  interest.  In  actions 
for  the  recovery  of  wages  for  labor  performed,  the  Court 
must  add,  as  part  of  the  costs,  an  attorney's  fee  not  ex- 
ceeding twenty  per  cent  of  the  amount  recovered.  This  also 
applies  to  suits  in  the  Superior  Court. 

Act  of  the  Legislature,  in  effect  April  28,  1907. 

Section  694.— IN  WHAT  TOWNSHIP  SUIT  MUST 
BE  BROUGHT. — If  the  money  is  to  be  paid  at  a  certain 
place,  then  the  suit  may  be  brought  in  the  township  and 
county  where  the  place  of  payment  is  situated.  But  if 
goods  are  sold  in  San  Franci§co  to  a  person  in  Ukiah,  and 
the  bill  is  to  be  paid  at  Ukiah,  then  the  creditor  must  sue 
in  the  Justice  Court  in  Ukiah  Township.  If  the  bill  is  to 
be  paid  at  San  Francisco,  the  suit  may  be  brought  in  the 
Justice  Court  there.  If  there  is  no  agreement  as  to  where 
the  obligation  to  pay  is  to  be  performed,  then  the  suit  must 
be  brought  in  the  township  and  county  where  the  debtor 
resides. 

Section  695.— SUIT  IN  SUPERIOR  COURT  ON 
BILLS  AND  ACCOUNTS.— If  the  bill  amounts  to  $300 
or  more,  exclusive  of  interest,  a  suit  to  collect  the  amount 
due  must  be  commenced  in  the  Superior  Court.  However, 
the  creditor  may  waive  all  the  excess  of  his  claim,  and  sue 
in  the  Justice  Court  for  a  sum  less  than  $300,  exclusive  of 
interest,  thus  remitting  to  the  debtor  all  of  the  account 
exceeding  the  amount  sued  for. 

Section  696.— IN  WHAT  COUNTY  SUIT  IN  SU- 
PERIOR  COURT   MUST   BE   BROUGHT.— The  same 

rule  applies  to  suits  in  the  Superior  Court  as  obtains  in  the 
matter  of  Justice  Court  suits.  That  is,  where  there  is  no 
place  agreed  upon  for  the  performance  of  the  debtor's  obli- 
gation to  pay,  the  debtor  has  a  right  to  have  the  suit  tried 
in  the  Superior  Court  of  the  county  where  he  resides ;  but 
if  the  bill  is  to  be  paid  where  the  creditor  resides,  or  at 
some  other  place,  the  suit  may  be  tried  there.    The  creditor 


COLLECTION  OP  BILLS  AND  ACCOUNTS.  411 

may  bring  his  suit  in  the  Superior  Court  of  the  county 
where  he  lives  or  has  his  place  of  business,  in  any  event, 
and  the  suit  will  be  tried  there,  unless  the  debtor  appears 
and  moves  for  the  transfer  of  the  case  to  the  Superior 
Court  of  the  county  of  his  own  residence. 

Section  697.— ATTACHMENT  OF  DEBTOR'S  PROP- 
ERTY   IN    SUIT    TO    COLLECT    ACCOUNT.— What 

])roperty  of  the  debtor  is  the  subject  of  attachment,  to 
secure  the  collection  of  an  account,  in  a  suit  by  the  creditor 
or  his  assignee,  and  what  property  is  exempt  from  attach- 
ment and  execution,  will  be  found  fully  stated  under  the 
head  of  "Attachments  and  Executions." 

Section  698.— MEANS  FOR  COLLECTION  TO  BE 
EMPLOYED  BY  AGENT.— Authority  of  an  agent  to  col- 
lect implies  and  includes  the  right  on  his  part  to  use  all  the 
ordinary  means  for  collection,  and  among  these  are  the 
employment  of  attorneys  and  the  commencement  of  suits. 

Section  699.— PAYMENT  TO  WIFE  OF  CREDITOR. 

— Where  a  man's  wife  is  in  the  habit  of  transacting  busi- 
ness for  him,  receiving  and  paying  out  money  for  him  with 
his  consent,  payment  to  her  of  a  debt  due  him  in  his  pres- 
ence, without  objection  from  him,  is  a  payment  to  him. 

Section  700.— PAYMENT  OF  NOTE  TO  SUPPOSED 
AGENT. — A  party  who  in  good  faith  makes  payments  upon 
a  promissory  note  to  one  whom  he  has  reason  to  believe  is 
the  authorized  agent  of  the  holder  thereof,  and  whose  acts 
in  receiving  such  payments  have  come  to  the  knowledge 
of  the  holder,  and  have  not  been  repudiated  by  him,  can- 
not be  held  for  the  money  so  paid  to  the  agent. 

Section  701.— TAKING  GOODS  FOR  CREDITORS' 
CLAIMS. — Where  creditors,  after  receiving  an  offer  of  a 
bill   of  sale   from   their   debtor,   assign   their   claims   to   a 


412  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

collecting  agent  for  the  purpose  of  conducting  the  transac- 
tion, with  authority  "to  take  the  goods  in  full  of  the 
creditor's  claims,"  the  agent  has  authority  to  agree  with  the 
debtor  that  the  sale  shall  be  conditional,  and  that  the  goods 
will  be  surrendered  to  him,  when  enough  is  realized  from 
the  sales  to  satisfy  the  claim. 

Section    702.— ACCEPTING  PROMISSORY  NOTE.— 

Under  authority  to  settle  with  the  debtor,  and  take  any- 
thing he  can  get,  an  agent  has  power  to  accept  a  promissory 
note. 

Section  703.— COLLECTION  OF  NOTES  BY  AGENT. 

— Authority  given  an  agent  to  collect  money,  due  on  a  note 
and  mortgage,  is  not  authority  to  the  agent  to  accept  a  con- 
veyance of  the  mortgaged  premises  in  payment. 

One  who  holds  a  note  for  collection  cannot,  without 
authority  from  the  payee,  agree  to  discharge  one  of  the 
joint  makers  upon  payment  by  him  of  a  part  of  the  sum 
due. 

Although  a  mortgagee  has  authorized  an  agent  to  col- 
lect interest  and  to  receive  payment  of  the  principal  when 
due,  the  agency  does  not  extend  to  receiving  payment  of 
principal  before  maturity. 

The  existence  of  an  agent's  authority  to  receive  payment 
of  notes  may  be  inferred  from  the  mutual  conduct  and  rela- 
tions of  the  parties,  or  from  the  general  nature  of  the  trans- 
actions in  which  they  are  concerned  and  the  circumstances 
surrounding  them. 


PART  III 

NOTES  AND  MORTGAGES 

Promissory  Notes 

Section  704.— WHAT  IS  A  PROMISSORY  NOTE.— 

The  statute  law  of  California  defines  a  promissory  note  to 
be  "an  instrument  negotiable  in  form,  whereby  the  signer 
promises  to  pay  a  specified  sum  of  money."  But,  while  it 
is  defined  as  an  instrument  "negotiable  in  form,"  it  may 
be  not  negotiable,  and  still  be  a  promissory  note.  And  the 
law  of  the  State,  as  well  as  the  rules  of  commercial  busi- 
ness, recognizes  two  classes  of  promissory  notes,  negotiable 
and  non-negotiable.  The  difference  between  these  two 
classes, — what  constitutes  a  negotiable  note,  and  what  is 
meant  by  a  non-negotiable  note, — will  be  found  stated  fur- 
ther on,  in  other  Sections. 

Civil  Code,  Section  3244. 

Section  705.— WHO  MAY  BE  PARTIES.— All  per- 
sons capable  of  entering  into  a  contract  may  be  parties  to 
a  promissory  note,  and  be  bound  by  it.  And  all  persons 
in  California  are  capable  of  contracting  except  minors,  per- 
sons of  unsound  mind,  and  persons  deprived  of  civil  rights. 
A  minor  in  California  is  a  male  under  the  age  of  21  years, 
or  a  female  under  the  age  of  18  years.  A  minor  under  the 
age  of  18  cannot  make  a  contract  relating  to  real  property, 
or  relating  to  any  personal  property  not  in  his  immediate 
possession  or  control ;  but  he  may  make  any  other  contract 
in  the  same  manner  as  an  adult,  subject  to  certain  condi- 
tions, stated  in  the  next  Section.  A  person  of  unsound 
mind,  entirely  without  understanding,  as  an  idiot  or  luna- 
tic, has  no  power  to  make  a  contract  of  any  kind;  but  a 
contract  may  be  made  by  a  person  of  unsound  mind  who 

(413) 


414  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

is  not  entirely  without  understanding,  such  a  contract,  how- 
ever, being  subject  to  be  set  aside  in  court.  A  person 
deprived  of  civil  rights  is  not  capable  of  making  a  con- 
tract while  in  that  condition.  A  person  is  deprived  of  civil 
rights  when  he  is  sentenced  to  imprisonment  in  the  State 
Prison  for  life,  and  his  civil  rights  are  suspended  during 
the  term  when  he  is  sentenced  for  a  term  less  than  life. 
A  convict  may,  however,  make  and  acknowledge  a  sale  and 
conveyance  of  property. 

Civil  Code,  Sections  23,  34,  38,  39,   1556;   Penal 
Code,  Sections  673,  674,  675. 

Section  706.— NOTE  MADE  BY  MINOR.— A  minor 
may  make  a  promissory  note  at  any  time  before  he  comes 
of  age.  But,  if  he  does  make  a  promissory  note  while  under 
the  age  of  18  years,  he  may  disown  and  repudiate  it,  either 
before  he  comes  of  age  or  within  a  reasonable  time  after- 
wards, by  giving  notice  that  he  disaffirms  it.  If  he  dies 
before  coming  of  age,  his  heirs  or  executors  have  a  right 
to  disown  and  repudiate  the  note.  No  part  of  a  note  made 
by  a  minor  under  the  age  of  18  years  can  be  collected,  if 
he  repudiates  and  disaffirms  it  before  he  reaches  his  major- 
ity, or  within  a  reasonable  time  afterwards.  If  a  minor 
over  18  years  of  age  makes  a  note,  he  may  likewise  repu- . 
diate  and  disaffirm  it,  before  becoming  of  age  or  within 
a  reasonable  time  afterwards,  but  he  must  restore  the  con- 
sideration to  the  party  from  whom  it  was  received.  Thus, 
if  a  young  man,  over  the  age  of  18  and  under  21  years  of 
age,  borrows  a  sum  of  money,  and  makes  his  note  as  secur- 
ity, he  may  disown  and  repudiate  the  contract  in  the  manner 
before  stated,  but  he  must  return  to  the  lender  the  money 
he  actually  received.  The  reason  of  the  distinction  between 
the  contracts  of  minors  under  the  age  of  18  and  the  con- 
tracts of  minors  over  18  years  is  this,  that  a  minor  under 
the  age  of  18  is  presumed  not  to  have  arrived  at  an  age 
of  judgment  and  discretion  sufficient  to  protect  him  from 
the  schemes  of  those  who  might  take  advantage  of  his 


NOTES  AND  MORTGAGES.  415 

infancy  to  defraud  him;  and  all  persons  who  enter  into 
a  contract  with  a  minor  under  the  age  of  18  must  do  so 
at  the  peril  of  having  such  a  contract  absolutely  disowned 
and  disaffirmed. 

Civil  Code,  Section  35. 

Section  707.— NOTE  MADE  TO  MINOR.— A  prom- 
issory note  may  be  made  to  a  minor,  and  he  takes  it  sub- 
ject to  the  same  right  to  disaffirm  the  contract  as  he  pos- 
sesses with  relation  to  a  note  made  by  him.  If  he  takes 
a  note  made  to  himself,  and  does  not  give  notice  of  disaf- 
firmance to  the  maker,  before  he  attains  his  majority  or 
within  a  reasonable  time  afterwards,  the  maker  will  be 
bound,  and  the  note  can  be  collected.  Also,  a  minor  who 
takes  a  note  made  to  himself  may  transfer  it  by  indorse- 
ment to  another,  and  the  person  to  whom  he  indorses  the 
note  can  collect  it,  unless  after  indorsement  the  minor  gives 
notice  to  the  maker  that  he  disaffirms  and  repudiates  the 
note.  In  other  words,  the  person  to  whom  a  minor  in- 
dorses a  note  will  take  it  subject  to  the  right  of  the  minor 
to  disaffirm  it. 

Section  708.— NOTE  MADE  BY  MARRIED  WOMAN. 

—Under  the  laws  of  California,  married  women  have  many 
rights  which  they  never  had  in  other  countries.  In  this 
State  a  married  woman  may  enter  into  any  contract  with 
any  person,  respecting  property,  which  she  might  do  if 
unmarried.  She  may  buy  or  sell,  lease  or  mortgage,  lend 
or  borrow,  *in  her  own  name  and  on  her  own  account.  It 
follows,  as  a  matter  of  course,  that  a  note  made  by  a 
married  woman  is  a  valid  and  binding  obligation,  for  she 
has  the  right  to  make  it.  But  a  note  made  by  a  married 
woman,  and  signed  by  her  alone,  can  only  be  collected  out 
of  her  separate  property.  The  community  property  be- 
longing to  the  husband  and  wife  is  not  liable  for  the  con- 
tracts of  the  wife  made  before  marriage.  The  separate 
property  of  the  wife,  out  of  which  alone  a  note  made  by 


416  BUSINESS   LAWS  FOR  BUSINESS  MEN. 

her  can  be  collected,  includes  all  property  which  she  owned 
before  marriage,  and  all  property  which  she  acquires  after 
marriage  by  gift,  or  by  will,  or  by  descent  to  her  as  heir, 
and  the  rents  and  profits  of  such  property.  If  a  note  made 
by  a  married  woman  is  sued  on,  the  judgment  can  only 
be  enforced  against  her  separate  property.  A  married 
woman  may  contract  with  her  husband  as  well  as  with 
others,  and  a  valid  note  may  be  made  by  her  to  him. 
Civil  Code,  Sections  158,  162. 

Section  709.— NOTE  MADE  TO  MARRIED  WOMAN. 
— A  promissory  note  may  be  made  to  a  married  woman, 
and  she  may  collect  it  alone,  without  reference  to  her  hus- 
band, if  it  relates  to  her  separate  property.  She  may 
legally  take  a  promissory  note  from  her  husband,  as  well 
as  from  others.  She  may  sue  in  her  own  name  to  collect 
a  note  made  to  her,  if  it  concerns  her  separate  property, 
and  her  husband  need  not  be  a  party  to  the  suit. 
Code  of  Civil  Procedure,  Section  370. 

Section  710.— NOTE  MADE  BY  CORPORATION.— 

A  promissory  note  may  be  made  by  a  corporation,  as  well 
as  by  a  natural  person.  But  there  are  certain  necessary 
requisites  to  the  validity  of  a  note  made  by  a  corporation 
which  do  not  exist  in  the  case  of  a  natural  person.  While 
a  man  may  act  as  his  own  individual  will  shall  dictate,  a 
corporation,  being  a  creature  without  a  soul,  can  only  act 
by  means  of  agents.  These  agents  may  have  general 
powers  delegated  to  them,  which  serve  for  all  occasions, 
or  they  may  have  special  powers  given  them,  for  a  certain 
prescribed  purpose.  In  either  case,  many  important  ques- 
tions frequently  arise  as  to  the  power  of  its  agents  to  bind 
a  corporation.  A  corporation  must  be  managed  and  con- 
trolled by  a  Board  of  Directors,  having  under  them,  and 
subject  to  their  directions,  certain  officers  or  other  agents. 
In  California,  the  Board  of  Directors  of  a  corporation  may 
consist   of  a   number,   not   less   than   three,   or  any   larger 


NOTES  AND   MORTGAGES.  417 

number,  selected  from  among  the  members  or  stockholders. 
A  majority  of  the  Board  constitutes  a  quorum.  Unless  a 
quorum  of  the  Board  of  Directors  is  present  and  acting,  no 
business  performed  is  valid  as  against  the  corporation.  The 
Directors  are  agents  of  the  corporation  only  when  they 
act  as  a  Board.  Therefore,  if  a  corporation  makes  a  note, 
such  action  must  be  authorized  by  its  Board  of  Directors, 
a  majority  of  the  Board  being  present.  A  corporation  must 
have  a  seal.  It  can  only  do  the  business  for  which  it  was 
organized.  A  corporation  organized  for  one  purpose  can 
not  carry  on  business  for  another  purpose.  In  the  course 
of  its  legitimate  business,  a  corporation  may  borrow  money, 
or  secure  a  creditor,  and  make  its  note  therefor.  This  is 
done  by  the  vote  of  the  Directors,  at  a  regular  meeting, 
a  majority  being  present.  A  record  of  the  votes  must  be 
kept,  the  ayes  and  noes  being  recorded.  A  majority  of 
the  Board  must  vote  in  favor  of  the  proposition.  The  ex- 
ecution of  the  note  being  thus  authorized,  the  President  may 
sign  the  name  of  the  corporation,  affix  the  seal  of  the  cor- 
poration, and  deliver  the  note  for  the  corporation.  No 
Director  must  be  financially  interested  in  the  transaction 
in  which  the  note  is  authorized  to  be  executed,  in  any  way 
which  conflicts  with  the  interests  of  the  corporation.  If 
any  director  is  so  interested,  and  it  requires  his  vote  to 
make  a  majority  in  favor  of  the  proposition,  the  action  of 
the  Board  will  not  be  legal,  and  the  note  will  be  void. 
The  note  must  be  made  in  the  legitimate  business  of  the 
corporation,  otherwise  it  will  be  void.  For  instance,  if  the 
Directors  of  a  banking  corporation  should  borrow  money 
to  build  a  railroad,  the  building  of  railroads  not  being  one 
of  its  purposes,  the  act  of  the  Directors  is  outside  of  their 
power,  and  the  note  is  invalid.  Every  person  taking  a 
note  from  a  corporation  is  presumed  to  know  the  purposes 
of  its  organization,  and  is  presumed  to  know  whether  the 
execution  of  the  note  was  authorized  as  the  law  directs. 
Therefore  the  person  to  whom  the  note  is  made  is  bound 
to  inform  himself  of  the  facts ;  for,  if  the  note  has  not  been 


418  BUSINESS   LAWS   FOB  BUSINESS   MEN. 

made  by  legal  authorization  of  the  Directors,  or  if  it  is 
outside  the  power  of  the  corporation,  and  not  within  its 
legitimate  business,  in  a  suit  on  the  note,  the  corporation 
can  make  that  defense  and  defeat  the  collection  of  the  note. 
If  a  note  has  been  made,  in  the  manner  and  for  a  purpose 
authorized  by  law,  the  corporation  is  legally  bound  to  pay  it. 
And,  further,  each  stockholder  in  the  corporation  becomes 
bound  for  the  payment  of  the  note.  Each  stockholder 
is  individually  and  personally  liable  for  such  proportion  of 
the  note  of  the  corporation  as  the  amount  of  stock  or  shares 
owned  by  him  bears  to  the  whole  of  the  subscribed  capital 
stock  or  shares  of  the  corporation.  The  liability  of  each 
stockholder  is  determined  by  the  amount  of  stocks  or  shares 
owned  by  him  at  the  time  the  note  was  made.  In  corpora- 
tions having  no  capital  stock,  each  member  is  individually 
and  personally  liable  for  his  proportion  of  the  amount  due 
on  the  note.  It  sometimes  happens,  too,  that,  after  the 
President  or  other  agent  of  the  corporation  has  made  a  note 
for  it,  without  authority  first  given,  but  for  the  legitimate 
uses  and  purposes  of  the  corporation,  the  Directors  after- 
ward ratify  the  act  of  the  agent.  This  ratification  may  be 
by  a  resolution  passed  at  a  meeting  of  the  Board,  or  it  may 
occur  where  the  corporation  enjoys,  in  its  proper  business, 
the  fruits  of  the  transaction.  In  either  case,  the  corporation 
and  its  stockholders  or  members  are  equally  bound  as  when 
the  note  is  made  by  previous  authority.  Where  the  trans- 
action concerning  the  execution  of  a  promissory  note  by  a 
corporation  is  fully  entered  in  the  books  of  the  corporation, 
and  notice  thus  imparted  to  it,  and  after  such  notice  the 
corporation  retains  the  consideration  of  the  transaction,  and 
thus  accepts  the  benefits,  it  must  be  held  to  have  ratified 
the  transaction.  (Decided  by  the  Supreme  Court  of  Cali- 
fornia, in  the  case  of  Curtin  vs.  Salmon  River  Hydraulic 
Gold  Mining  and  Ditch  Company,  which  decision  is  printed 
in  Volume  26,  California  Decisions,  page  949.) 
Civil  Code,  Sections  290,  305,  308,  322. 


NOTES  AND   MORTGAGES.  419 

Section  711.— NOTE   MADE   TO    CORPORATION.— 

A  note  may  be  made  to  a  corporation,  as  well  as  by  it. 
The  note  should  be  made  to  the  corporation  by  its  cor- 
porate name,  but  a  mistake  in  the  name  will  not  invalidate 
the  note.  If  there  is  a  mistake  in  the  name  of  the  cor- 
poration, in  the  note,  that  will  make  no  difference,  if  it 
can  be  reasonably  ascertained  from  the  note  what  corpora- 
tion is  intended.  Having  taken,  and  received  the  note,  the 
corporation  has  the  same  rights,  with  reference  to  its  col- 
lection, as  an  individual  would  have. 
Civil  Code,  Section  357. 

Section    712.— NOTE    MUST    BE    IN    WRITING.— 

There  is  no  such  thing  as  a  verbal  promissory  note.  A 
promissory  note  must  be  in  writing.  i 

Section   713.— NOTE   MAY   BE   IN   PENCIL.— While 

a  promissory  note  must  be  in  writing,  such  writing  need 
not  be  in  ink ;  it  may  be  in  pencil ;  and  it  need  not  be  all 
in  the  handwriting  of  the  maker;  for  it  may  be  printed,  or 
it  may  be  typewritten,  yet  if  the  name  of  the  niaker  is 
signed  to  it,  the  note  will  be  valid. 

Section  714.— MUST  BE  FOR  THE  PAYMENT  OF 
MONEY. — A  promissory  note  must  be  for  the  payment 
of  money,  and  for  the  payment  of  money  only.  So,  a  writ- 
ten promise  to  pay  money  and  goods,  or  to  pay  goods 
alone,  is  not  a  legal  promissory  note.  No  written  promise 
to  pay  is  a  valid  promissory  note,  unless  it  be  for  the 
payment  of  money,  and  of  money  only.  But  it  may  be 
made  payable  in  the  money  or  currency  of  any  other  coun- 
try, as  well  as  in  the  money  of  the  United  States.  It  may 
be  made  payable  in  the  money  of  England,  or  France, 
or  Spain,  or  Holland,  or  Italy,  or  of  any  other  country, 
and  will  be  just  as  binding  as  though  made  payable  in 
the  coin  of  the  United  States.  It  may  be  made  payable 
in  coins,  such  as  guineas,  ducats,  doubloons,  crowns,  or 


420  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

in  dollars,  or  in  pounds  sterling.     In  the  ordinary  business 
transactions  of  this  country  a  note  is  usually  made  payable 
in  dollars,  gold  coin  of  the  United  States. 
Civil  Code,  Section  3244. 

Section  715.— MUST  BE  FOR  A  CERTAIN  SPECI- 
FIED AMOUNT.— Not  only  must  the  note  be  for  the  pay- 
ment of  money,  but  it  must  also  be  for  a  certain  specified 
amount.  The  amount  stated  in  the  note  must  be  fixed 
and  certain.  Therefore,  if  the  promise  be,  to  pay  a  speci- 
fied sum  of  money,  with  all  other  sums  that  may  be  due; 
or,  to  pay  a  specified  sum  of  money,  and  the  demands  of 
another  person ;  or,  to  pay  a  specified  sum  of  money,  after 
deducting  allowances  and  expenses ;  in  all  such  cases  the 
instrument  is  void  as  a  promissory  note,  because  the  amount 
to  be  paid  is  not  fixed  with  certainty  on  the  face  of  the 
note.  The  amount  to  be  paid,  however,  if  it  be  a  fixed  sum, 
need  not  be  written  in  words,  but  may  be  expressed  in 
figures. 

Civil  Code,  Section  3244. 

Section  716.— MUST  NOT  BE  SUBJECT  TO  ANY 
CONDITION  OR  CONTINGENCY.— The  note,  to  be 
valid,  must  not  be  subject  to  any  condition  or  contingency 
which  might  defeat  the  promise  to  pay.  The  money  must 
be  payable  absolutely,  and  must  not  depend  upon  the  hap- 
pening or  not  happening  of  some  event.  Consequently,  if 
a  note  is  made  payable  provided  a  thing  is  done,  or  pro- 
vided a  thing  is  not  done,  or  which  makes  the  payment 
depend  upon  any  contingency  or  uncertainty,  it  is  not  a 
valid  promissory  note. 

Section  717.— FORM  OF  NOTE.— A  promissory  note 
need  not  be  in  any  particular  form,  so  long  as  it  is  cer- 
tainly to  be  seen  on  the  face  of  it  who  is  the  maker,  to 
whom  it  is  payable,  the  sum  to  be  paid,  and  an  absolute 
promise  to  pay  it.     The  most  common  form  of  negotiable 


NOTES  AND   MORTGAGES.  421 

promissory  note  in  use  in  California,  and  one  which  an- 
swers every  purpose,  is  as  follows  : — 

,  Cal., ,190.. 

after  date,  for  value  received,  I  promise 

to  pay ,  or  order,  at , 

California,  the  sum  of Dollars, 

Gold  Coin  of  the  United  States,  with  interest  thereon  in  like 

Gold  Coin  at  the  rate  of per  cent  per  annum  from 

date  until  paid.  Interest  payable  semi-annually,  and  if  not 
so  paid  to  be  added  to  the  principal  and  bear  interest  at 
the  same  rate  until  paid. 


Or  the  note  may  be  made  as  follows : — 

,Cal., ,190.. 

One  day  after  date,  for  value  received,  I  promise  to  pay 

,  or  order,  at , 

California,  the  sum  of ,  Dollars,  Gold 

Coin  of  the  United  States,  with  interest  thereon   in  like 

Gold  Coin  at  the  rate  of per  cent  per  annum  from 

date  until  paid.  Interest  payable  semi-annually,  and  if  not 
so  paid  to  be  added  to  the  principal  and  bear  interest  at  the 
same  rate  until  paid. 


Or  the  note  may  be  made  as  follows : — 

,Cal., ,190.. 

For  value  received  I  promise  to  pay 

or  bearer  the  sum  of Dollars,  Gold 

Coin  of  the  United   States,  with  interest  thereon   in   like 

Gold  Coin  at  the  rate  of per  cent  per  annum  from 

date  until  paid.  Interest  payable  semi-annually,  and  if  not 
so  paid  to  be  added  to  the  principal  and  bear  interest  at 
the  same  rate  until  paid. 


Section  718.— TIME  OF  PAYMENT.— It  is  not  abso- 
lutely necessary  that  a  note  should  state  the  time  of  pay- 
ment. If  it  does  state  the  time  of  payment,  it  is  due  on 
the  day  stated,  or,  when  that  day  is  a  holiday,  the  next 
business  day.  If  it  does  not  specify  the  time  of  payment, 
but  merely  "For  value  received  I  promise  to  pay,"  it  is 
payable   immediately.       If   the   day   of    payment   falls   on 


422  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

Sunday,  or  Fourth  of  July,  or  Christmas,  or  Thanksgiving, 
or  any  other  legal  holiday,  the  note  is  due  on  the  next  day. 
Civil  Code,  Sections  3099,  3132. 

Section  719.— PLACE  OF  PAYMENT.— A  note  is  valid 
which  does  not  specify  any  place  of  payment.  If  the  note 
specifies  a  place  of  payment,  as,  "At  San  Francisco,"  it 
must  be  paid  at  the  place  specified.  If  the  note  does  not 
specify  any  place  of  payment  at  all,  it  is  payable  at  the 
residence  or  place  of  business  of  the  maker,  or  wherever 
he  may  be  found.  The  holder  of  the  note,  when  no  place 
of  payment  is  specified,  may  present  it  for  payment  at 
either  the  maker's  residence,  his  place  of  business,  or  wher- 
ever he  is  found,  at  his  option. 

Civil  Code,  Section  3100. 

Section  720.— DATE  OF  NOTE.— The  date  of  a  note 
need  not  necessarily  be  at  the  beginning.  The  date  may 
be  placed  upon  any  part  of  the  paper,  at  the  top,  or  at  the 
bottom,  or  anywhere  else  on  its  face,  and  it  will  be  suffi- 
cient. It  is  not  necessary  to  insert  the  true  date  of  its 
signing.  Any  date  may  legally  be  inserted  by  the  maker, 
whether  past,  present,  or  future,  and  the  note  will  still  be 
valid  and  binding.  In  any  dispute  in  court  the  holder  or 
the  maker  will  be  allowed  to  show  the  actual  time  when 
the  note  was  executed  or  delivered,  or  when  it  was  intended 
by  the  parties  to  take  effect. 

Civil  Code,  Section  3094. 

Section    721.— NOTE    NOT    DATED    IS    VALID.— A 

note  is  valid  although  not  dated  at  all.  If  it  bears  no  date, 
it  will  be  considered  as  dated  at  the  time  it  was  executed. 
And  if  the  holder  of  a  note  which  bears  no  date  at  all  sues 
to  collect  it,  he  will  be  allowed  to  show  by  verbal  testi- 
mony when  the  note  was  actually  signed,  or  when  it  was 
intended  by  the  parties  to  take  effect. 
Civil  Code,  Section  3091. 


NOTES  AND   MORTGAGES.  423 

Section  722.— HOW  MUST  BE  SIGNED  BY  MAKER. 

— The  name  of  the  maker  may  be  affixed  to  any  portion 
of  the  note,  and  it  will  be  good.  It  may  be  at  the  begin- 
ning, or  in  the  middle,  or  signed  at  the  end.  For  instance, 
if  a  note  begins,  "I,  John  Smith,  promise  to  pay,"  etc.,  and 
is  not  otherwise  subscribed  at  all,  it  will  be  a  valid  note, 
because  the  intention  to  bind  the  maker  is  apparent.  The 
maker's  name  may  be  signed  in  pencil.  If  the  maker  can- 
not write,  his  signature  may  be  by  an  X,  or  mark,  his 
name  being  written  near  the  mark  by  another  person,  who 
writes  his  own  name  as  a  witness. 
Civil  Code,  Section  14. 

Section  723.— FORM  OF  NOTE  SIGNED  WITH  AN 

X. — The  following  is  a  good  form  for  a  note  signed  with 
an  X,  or  mark,  by  a  person  who  cannot  write : — 

,Cal., ,  190.. 

after  date,  for  value  received,  I  promise 

to  pay ,  or  order,  at  , 

California,  the  sum  of Dollars,  Gold 

Coin  of  the  United  States,  with   interest  thereon   in   like 

Gold  Coin  at  the  rate  of per  cent  per  annum  from 

date  until  paid.  Interest  payable  semi-annually,  and  if  not 
so  paid  to  be  added  to  the  principal  and  bear  interest  at 
the  same  rate  until  paid, 

his 
SAMUEL      X    GREEN, 
mark. 
GEORGE  JONES, 

Witness  to  signature  of  Samuel  Green. 

Section  724.— MAKER'S  NAME  SPELLED  WRONG. 

— It  will  make  no  diflference  in  the  validity  of  a  note  that 
the  name  of  the  maker  is  misspelled  in  his  signature.  The 
note  is  good  if  it  can  be  determined,  by  the  face  of  the 
note,  or  the  indorsement  on  its  back,  who  the  maker  is. 

Section  725.— NAME  OF  PERSON  TO  WHOM  NOTE 
IS  PAYABLE. — The  payee  need  not  be  named  in  person, 


424  BUSINESS  LAWS  FOB  BUSINESS   MEN.     . 

if  some  one  be  indicated.  Therefore  it  is  sufficient  if  the 
note  is  made  payable  "to  John  Smith,  or  bearer,"  or  "to  the 
holder,"  or  "to  order,"  for  this  must  be  intended  to  mean 
whoever  comes  into  lawful  possession  of  it. 

Section  726.— NOTE  PAYABLE  ON  OR  BEFORE 
A  CERTAIN  DATE.— A  note  may  be  made  payable  on 
or  before  a  certain  date,  and  this  will  give  the  maker  the 
right  to  pay  the  note  at  any  time  before  the  date  named, 
at  his  option.  But  the  holder  cannot  compel  the  maker 
to  pay  the  note  until  the  date  named  in  it.  Thus,  if  a  note 
is  made  payable  "on  or  before  one  year  after  date,"  the 
maker  has  a  right,  if  he  chooses,  to  pay  the  note  at  any 
time  during  the  year;  but  the  holder  cannot  compel  him 
to  pay  until  the  year's  time  has  expired. 

Section  727.— FORM  OF  NOTE  PAYABLE  ON  OR 
BEFORE  A  CERTAIN  DATE.— A  good  form  of  note, 
giving  the  maker  the  option  of  paying  at  any  time  before 
the  date  named,  is  as  follows : — 

,  Cal.,  190.. 

On  or  before  one  year  after  date,  for  value  received,  I 

promise  to  pay ,  or  order,  at , 

California,  the  sum  of Dollars,  Gold 

Coin  of  the  United  States,  with  interest  thereon  in  like  Gold 

Coin  at  the  rate  of per  cent  per  annum  from  date 

until  paid.  Interest  payable  semi-annually,  and  if  not  so 
paid  to  be  added  to  the  principal  and  bear  interest  at  the 
same  rate  until  paid. 


Section     728.— NOTE     WITH     PAYEE     BLANK.— A 

note  may  be  made  with  the  payee  blank,  that  is,  with  a 
blank  space  for  the  payee's  name  to  be  inserted,  and  it  will 
be  payable  to  bearer.  It  passes  by  delivery,  and  any  bona 
fide  holder  for  value  may  fill  it  up  with  his  own  name  and 
sue  upon  it. 


NOTES  AND   MORTGAGES.  425 

Section  729.— NOTE  PAYABLE  TO  ORDER  OF 
MAKER. — A  note  may  be  made  payable  to  the  order  of 
the  maker.  For  instance,  the  note  may  call  for  payment 
"to  the  order  of  myself,"  and  be  indorsed  by  the  maker  to 
another  person.  The  holder  will  take  a  valid  note  by  such 
indorsement,  and  the  maker  will  be  bound. 

Section    730.— WHEN     NOTE    IS     NEGOTIABLE.— 

In  order  for  a  note  to  be  negotiable,  it  must  be  made  pay- 
able to  "order,"  or  to  "bearer."  Without  these  words,  the 
note  is  not  negotiable.  By  a  negotiable  note  is  meant  an 
instrument  which  passes  from  one  person  to  another  by 
indorsement  and  delivery,  and  which,  if  transferred  before 
it  is  due,  entitles  the  holder  to  collect  the  full  amount  which 
its  face  calls  for.  But  there  must  be  something  on  the  face 
of  the  note  to  indicate  the  intention  of  the  parties  that  it 
shall  be  transferable  by  indorsement,  negotiable;  and  com- 
mercial custom  and  the  law  of  California  provides  that  such 
intention  must  be  made  manifest  on  the  face  of  the  note,  by 
the  use  of  the  word  "order"  or  "bearer." 
Civil  Code,  Section  3087. 

Section  731.— WHEN  NOTE  IS  NOT  NEGOTIABLE. 

— A  note  which  is  merely  made  payable  to  a  certain  per- 
son, and  not  to  "order,"  or  not  to  "bearer,"  is  not  nego- 
tiable. But,  besides  the  omission  of  these  words  of  nego- 
tiability, there  are  other  thmgs  which  destroy  the  negotiable 
character  of  a  note.  Thus,  if  a  note  is  made  payable  out  of 
a  certain  specified  fund,  it  is  not  negotiable. 

Section  732.— DIFFERENCE  BETWEEN  NEGOTIA- 
BLE NOTE  AND  NOTE  NOT  NEGOTIABLE.— In  the 

law  of  California,  as  applied  to  common  business  affairs,  the 
essential  difference  between  the  two  kinds  of  notes,  a  note 
which  is  negotiable  and  a  note  which  is  not  negotiable,  will 
be  found  to  be  this :  A  negotiable  note  passes  from  one  to 
another  by  delivery  and  indorsement,  and  may  pass  through 


426  BUSINESS   LAWS   FOR   BUSINESS   MEN.  « 

an  indefinite  number  of  hands,  and  so  long  as  it  is  indorsed 
for  value,  before  becoming  due,  the  holder  acquires  an 
absolute  claim  against  the  maker.  The  note,  by  being 
made  payable  to  order,  or  to  bearer,  being  negotiable,  is 
a  circulating  credit,  and  it  makes  no  diiTerence  to  the 
holder  that  the  maker  of  the  note  and  the  payee  named  in 
it  may  have  had  other  dealings  between  themselves,  on 
account  of  which  the  payee  may  have  become  indebted  to 
the  maker;  and  in  a  suit  upon  a  negotiable  note,  which 
has  been  indorsed  for  value  to  a  third  person,  the  maker 
cannot  set  up  against  the  note  anything  which  the  payee 
owes  him.  The  maker  of  a  negotiable  note,  indorsed  by 
the  payee  for  value  to  another,  must  pay  the  whole  note. 
But  a  note  which  is  not  negotiable  stands  upon  a  different 
footing.  It  may  pass  from  the  payee  to  whom  it  was  made, 
for  it  may  be  assigned  by  the  original  holder  to  another. 
But  the  assignee  of  a  non-negotiable  note  takes  it  subject 
to  all  set  ofTs  which  the  maker  may  have  against  the  original 
holder.  Let  us  suppose  that  Jones  makes  his  note  to  Smith 
for  $500,  and  the  note  is  not  negotiable,  and  Smith  assigns  it 
to  Green,  but  at  that  time  Smith  has  become  indebted  to 
Jones  upon  another  contract,  in  the  amount  of  $250;  when 
Green  sues  to  collect  the  note,  Jones  can  set  off  against 
the  $500  note  the  $250  which  Smith  owed  him.  It  will  make 
no  difference  that  Green  paid  Smith  the  full  $500  called  for 
by  the  note ;  the  note  was  not  negotiable,  and  he  was  bound 
to  take  it,  if  he  chose  to  take  it  at  all,  subject  to  any  defense 
which  the  maker  might  have  acquired  against  his  assignor. 
Civil  Code,  Section  1459. 

Section  733.— JOINT  NOTE.— Two  or  more  persons 
may  make  a  note,  and  become  jointly  liable  to  pay  it.  That 
is,  the  intention  may  be  expressed  by  two  or  more  makers 
of  a  note  that  they  will  take  upon  themselves  the  mutual 
and  joint  obligation  of  paying  the  sum  of  money  specified 
in  it. 

Civil  Code,  Section  1430. 


NOTES  AND   MORTGAGES.  427 

Section  734.— FORM  OF  JOINT  NOTE.— A  joint  note 
may  be  made  in  the  following  form : — 

,Cal., ,190.. 

after  date,  for  value  received,  we  prom- 
ise to  pay  to ,  or  order,  the  sum  of 

Dollars,  Gold  Coin  of  the  United 

States,  with  interest  thereon  in  like  Gold  Coin  at  the  rate 
of per  cent  per  annum  from  date  until  paid.  Inter- 
est payable  semi-annually,  and  if  not  so  paid  to  be  addef' 
to  the  principal  and  bear  interest  at  the  same  rate  until 
paid. 


Section  735.— LIABILITY  ON  JOINT  NOTE.— The 
makers  of  a  joint  note  are  all  liable  together,  each  for  his 
proportionate  share,  and  must  all  be  sued  together.  But 
one  of  the  makers  of  a  joint  note,  who  satisfies  more  than 
his  share  of  the  claim  against  all,  may  compel  all  the  parties 
joined  with  him  to  contribute  their  proportion  of  the  amount 
so  paid  by  him. 

Civil  Code,  Section  1432. 

Section  736.— JOINT  AND  SEVERAL  NOTE.— Sev- 
eral persons  may  make  a  note  so  as  to  become  jointly  and 
severally  liable  to  pay  it ;  such  a  note  expressing  the  inten- 
tion, that  the  holder  may  have  the  right  to  call  upon  all  or 
any  one  or  more  of  the  makers  for  payment  of  the  note,  at 
his  option. 

Civil  Code,  Section  1430. 

Section  737.— FORM  OF  JOINT  AND  SEVERAL 
NOTE. — A  joint  and  several  note  may  be  made  in  the  fol- 
lowing form : — 

,Cal., ,190.. 

after  date,  for  value  received,  we  or 

either  of  us  promise  to  pay or 

order,  at ,  California,  the  sum  of 

Dollars,  Gold  Coin  of  the  United  States,  with 


428  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

interest  thereon  in  like  Gold  Coin  at  the  rate  of per 

cent  per  annum  from  date  until  paid.  Interest  payable 
semi-annually,  and  if  not  so  paid  to  be  added  to  the  prin- 
cipal and  bear  interest  at  the  same  rate  until  paid. 


Section  738.— LIABILITY  OF  MAKERS  OF  JOINT 
AND  SEVERAL  NOTE.— The  makers  of  a  joint  and 
several  note  are  liable  in  a  twofold  capacity.  All  are  liable 
tog'ether,  each  for  his  proportionate  share  of  the  sum  spec- 
ified in  the  note,  and  each  one  of  the  makers  is  severally 
liable,  standing  alone.  The  holder  of  the  note  may  sue 
all  of  the  makers  together,  and  recover  a  judgment  against 
all,  or  he  may,  at  his  option,  sue  any  one  of  the  makers 
alone,  and  compel  him  to  pay  the  whole  note.  If  one  of 
the  makers  is  compelled  to  pay  the  whole  note,  he,  in  turn, 
may  compel  the  others  to  pay  him  their  proportionate  share 
for  which  they  became  liable  on  the  note.  With  this,  how- 
ever, the  holder  has  nothing  to  do.  He  has  the  right  to 
single  out  any  one  or  more  of  the  signers  of  a  joint  and 
several  note,  and  collect  from  him  or  them,  or  he  may  col- 
lect from  all. 


Section  739.— INTEREST.— The  California  law  of  inter- 
est does  not  recognize  usury,  and  any  rate  may  be  charged 
which  the  parties  agree  upon.  In  many  States  of  the  Union 
the  law  limits  the  rate  of  interest  which  can  be  charged  to 
a  certain  per  cent  per  annum,  ranging  in  amount  from 
5  to  12  per  cent;  but  in  California  the  conditions  of  settle- 
ment and  early  business  dealings  always  were  such  as 
to  encourage  inflation  and  speculation,  and  consequent  high 
rates  of  interest,  and  the  Legislature  has  several  times  re- 
fused to  enact  a  law  against  usury.  Therefore  the  law  now 
is  that  the  parties  to  a  promissory  note  may  agree  upon  any 
rate  of  interest,  and  the  note  will  be  valid. 


NOTES  AND  MORTGAGES.  429 

Section    740.— LEGAL    RATE    OF    INTEREST.— The 

legal  rate  of  interest  in  California,  that  is,  the  rate  allowed 
by  law  when  the  note  does  not  say  anything  about  interest, 
is  seven  per  cent  per  annum.  Therefore,  if  a  note  is  made 
which  does  not  say  anything  at  all  about  interest,  and  suit 
is  brought  to  collect  it,  the  judgment  against  the  maker 
will  bear  interest  at  the  rate  of  seven  per  cent  per  annum. 
This  interest  will  commence  at  the  date  when  the  note  be- 
came due. 


Section  741.— ATTORNEY  FEES.— A  note  may  be 
made  providing  that,  in  the  event  of  the  holder  commencing 
suit  to  collect  it,  the  maker  will  pay  an  attorney  fee  to  the 
payee.  Such  a  note  is  negotiable.  The  session  of  the 
Legislature  of  1905  adopted  an  amendment  to  the  Civil 
Code,  providing  that  a  negotiable  note  may  provide  for  the 
payment  of  attorney's  fees  and  costs  of  suit,  in  case  suit  be 
brought  to  collect  the  note,  and  the  note  will  still  be  nego- 
tiable. (Amendment  to  Section  3088,  Civil  Code,  approved 
March  10,  1905.) 

Section    742.— WHEN    NOTE    IS    OUTLAWED.— In 

California  a  note  is  outlawed  if  it  is  allowed  to  run  more 
than  four  years  after  it  becomes  due.  For  instance,  if  a 
note  is  made  payable  one  year  after  date,  it  will  not  out- 
law for  five  years ;  the  holder  may  commence  a  suit  on  the 
note  after  the  expiration  of  the  one  year ;  but  he  may  wait, 
and  commence  the  suit  at  any  time  within  four  years  after 
the  note  by  its  terms  becomes  due.  The  same  rule  of 
course  applies  to  a  note  made  payable  at  any  other  term. 
The  note  remains  good  for  four  years  after  it  is  due.  After 
four  years  from  the  date  when  the  note  becomes  due,  in  a 
suit  upon  the  note,  the  maker  or  other  person  liable  to  pay 
it  can  set  up  as  a  defense  that  it  is  outlawed.  And  if  in 
fact  the  holder  has  waited  more  than  four  years  after  the 
note  has  become  due,  before  commencing  a  suit  upon  it. 


430  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

the  note  will  be  outlawed,  and  cannot  be  collected  if  such 
defense  is  made. 

Code  of  Civil  Procedure,  Section  337. 

Section  742a.— APPARENT  MATURITY  OF  NOTE.— 

The  apparent  maturity  of  a  promissory  note,  payable  at 
sight  or  demand,  is  as  follows :  If  it  bears  interest,  one  year 
after  its  date ;  or,  if  it  does  not  bear  interest,  six  months  after 
its  date.  Therefore,  if  an  interest-bearing  note  is  made, 
reading,  "For  value  received  I  promise  to  pay,"  etc.,  it  ma- 
tures one  year  after  its  date.  If  the  holder  presents  the  note 
for  payment  within  one  year  from  its  date,  he  has  four 
years  from  the  time  when  he  demands  payment  in  which  to 
sue  upon  the  note.  If  he  does  not  demand  payment  imtil 
after  one  year  from  its  date,  the  four  years  will  not  begin  at 
the  time  when  he  demands  payment,  but  will  begin  one  year 
after  the  date  of  the  note.  Where  a  promissory  note  is  pay- 
able at  a  certain  time  after  sight  or  demand,  such  time  is 
to  be  added  to  the  periods  mentioned. 

What  has  been  said  above  applies  only  to  promissory 
notes  in  which  the  time  of  maturity  does  not  appear  upon 
the  face  of  the  note,  that  is,  where  the  time  when  the  note 
becomes  due  is  not  stated. 

Civil  Code,  Sections  3135,  3136. 

> 

Section  743.— WHEN  OUTLAWED  NOTE  IS  RE- 
NEWED.— A  note  is  renewed  by  the  promise  of  the  maker 
to  pay  the  sum  due.  But  the  promise  must  be  in  writing, 
in  all  cases,  or  the  note  will  not  be  renewed.  There  must 
be  a  written  acknowledgment  of  the  debt  and  an  uncon- 
ditional promise  to  pay  it,  in  order  to  revive  it,  after  a  note 
is  outlawed.  The  acknowledgment  and  promise  are  not 
required  to  be  in  any  particular  form.  It  may  be  indorsed 
on  the  note;  it  may  be  by  letters  written  by  the  maker  to 
the  creditor;  or  it  may  be  by  writing,  in  the  form  of  a 
contract,  to  revive  and  keep  alive  the  note.  But  in  what- 
ever form  the  writing  is,  whether  by  indorsement,  or  letter, 


NOTES  AND  MORTGAGES.  431 

or  formal  contract,  the  written  promise  must  be  signed  by 
the  debtor  and  made  to  the  creditor.  If  the  maker  of  the 
note  admits,  after  it  is  outlawed,  to  a  third  person  thai 
he  owes  the  money,  the  note  will  still  remain  outlawed. 
The  law  is  that  the  acknowledgment  of  an  outlawed  debt 
and  the  new  promise  to  pay  it,  must  be  made  to  the  creditor 
himself,  and  must  be  in  writing,  signed  by  the  debtor.  The 
payment  of  interest  will  not  revive  an  outlawed  note,  un- 
less such  payment  is  accompanied  by  a  written  acknowl- 
edgment of  the  principal  debt  and  a  promise  to  pay  it.  A 
part  payment  of  the  amount  of  a  note,  after  it  has  become 
outlawed,  will  not  revive  the  whole  debt  without  a  writ- 
ten acknowledgment.  A  letter  from  the  maker  of  the  note 
to  the  creditor,  after  it  is  outlawed,  expressing  a  desire  to 
pay  it,  will  revive  the  debt  and  create  a  new  promise  to 
pay.  The  holder  of  the  note  may  then  sue  to  collect  the 
amount  due,  at  any  time  within  four  years  after  the  new 
promise  was  made.  The  efifect  of  the  new  promise  to  pay 
is  to  extend  the  obligation  of  the  debtor  four  years  longer. 
If  one  only  of  several  joint  makers  of  a  note,  after  it  is  out- 
lawed, signs  a  written  acknowledgment  and  promise  to  pay 
the  debt,  he  binds  himself  alone.  He  cannot  bind  anybody 
but  himself,  and  if  the  creditor  wants  the  obligation  ex- 
tended as  to  all  the  joint  makers  of  the  note,  he  must  get 
the  signatures  of  all. 

Code  of  Civil  Procedure,  Section  360. 

Section  744.— INDORSEMENT  OF  NEGOTIABLE 
NOTE. — A  negotiable  note,  if  payable  "to  order,"  passes 
from  one  person  to  another  by  indorsement.  This  indorse- 
ment must  be  in  writing.  One  who  agrees  to  indorse  a 
negotiable  note  is  bound  to  write  his  signature  upon  the 
back  of  the  note,  if  there  is  sufficient  space  on  the  back  for 
that  purpose.  But  it  sometimes  happens  that  the  holder 
of  a  note  has  written  on  the  back  acknowledgments  of 
money  paid,  or  that  many  previous  indorsers  have  signed 
their  names,  and  in  this  manner  the  entire  back  of  the  note 


432  BUSINESS  LAWS   FOR  BUSINESS  MEN. 

is  covered,  and  there  is  no  more  room  for  any  further  writ- . 
ing  upon  it.  The  law  of  California  provides,  that  when  this 
happens,  the  holder  may  pin  or  paste  on  a  piece  of  paper 
sufficient  for  his  own  and  subsequent  indorsements.  Such 
addition  to  the  original  note  thus  becomes  incorporated  as 
a  part  of  it.  A  note  with  the  name  of  the  holder  written 
by  him  on  the  back,  or,  if  there  is  no  room  on  the  back, 
on  a  piece  of  paper  pinned  or  pasted  to  the  note,  passes  the 
legal  title  in  the  debt  to  the  person  to  whom  the  note  is 
delivered. 

Civil  Code,  Sections  3108,  3109,  3110. 

Section  745.— KINDS  OF  INDORSEMENTS.- There 
are  two  kinds  of  indorsements ;  one  is  called  a  general  in- 
dorsement, and  the  other  is  called  a  special  indorsement. 

Section  746.— GENERAL  INDORSEMENT.— A  gen- 
eral indorsement  is  one  where  the  name  of  the  indorser 
is  written  on  the  back  of  the  note,  without  writing  the  name 
of  any  indorsee.  The  note  may  then  be  delivered  to  any- 
body. The  indorsement  is  general,  because  not  made  to 
any  one  in  particular.  Therefore  the  title  to  the  note  passes 
to  any  person  to  whom  it  is  delivered,  is  payable  to  the 
bearer,  and  may  be  indorsed  and  transferred  by  the  bearer 

Section  747.— SPECIAL  INDORSEMENT.— A  special 
indorsement  is  where  the  holder  writes  his  name  on  the 
back  of  the  note,  and  also  writes  the  name  of  the  indorsee, 
thus  specifying  a  particular  person  to  whom  payment  is  to 
be  made.  A  note  thus  indorsed  cannot  be  indorsed  again 
and  passed  on  by  anybody  but  the  indorsee  whose  name  is 
written  on  the  back  of  the  note. 

Civil  Code,  Section  3112,  3113. 

Section  747a.— INDORSER  OF  NON-NEGOTIABLE 
NOTE. — One  who  writes  his  name  upon  the  back  of  a  non- 
negotiable  promissory  note,  to  give  it  credit,  is  a  guarantor, 


NOTES  AND  MORTGAGES.  433 

and  is  liable  prima  facie  for  the  payment  of  the  note  upon 
default  of  the  maker. 

Where  a  corporation  has  received  the  money  obtained  on 
a  promissory  note,  upon  which  its  name  appears  as  an  in- 
dorser,  it  cannot  thereafter  question  the  authority  of  its  offi- 
cers to  make  such  indorsement.  (Decided  by  the  California 
District  Court  of  Appeals,  in  the  case  of  Tilden  vs.  Goldy 
Machine  Co.,  which  decision  is  printed  in  California  Appel- 
late Decisions,  Volume  7,  page  323.) 

Section  748.— ASSIGNMENT  OF  NOTE  NOT  NEGO- 
TIABLE.— The  difference  between  a  note  which  is  nego- 
tiable, and  a  note  which  is  not  negotiable,  has  been  ex- 
plained. A  note  which  is  not  negotiable,  for  any  reason, 
may  nevertheless  be  transferred,  by  assignment.  There  is 
no  particular  form  of  assignment.  The  following  words 
written  on  the  back  of  a  non-negotiable  note  are  sufficient 
to  assign  the  note  from  the  holder  to  another  person : — 

"I  hereby  assign  the  within  note  to  John  Smith. 

"James  Green." 

It  has  also  been  held  by  the  courts  that  a  non-negotiable 
note  may  be  legally  assigned  by  the  mere  indorsement  of 
the  name  of  the  holder  and  a  delivery  of  the  note  to  another 
person.    . 

Section    749.— LIABILITY   OF    INDORSERS.— Every 

indorser  of  a  negotiable  note,  unless  his  indorsement  is 
qualified  in  some  way,  by  his  indorsement  warrants  to 
every  subsequent  holder  thereof  that  the  note  is  in  all  re- 
spects what  it  purports  to  be;  that  he  has  a  good  title  to 
it;  that  the  signatures  of  all  prior  parties  are  genuine;  and 
that  if  the  note  is  dishonored  the  indorser,  upon  notice  of 
the  dishonor  being  given  him,  will  pay  the  amount  due 
on  the  note,  with  interest,  to  the  indorsee  or  other  holder. 
Any  number  of  indorsements  may  be  made  of  a  promissory 
note,  and  the  last  indorsee  may  look  to  all  of  the  indorsers 
for  his  money,  and  he  will  have  the  same  rights  against 


434  BUSINESS   LAWS   FOE  BUSINESS   MEN. 

every  one  of  the  indorsers  as  he  has  against  the  particular 
holder  who  indorsed  the  note  to  him.  Sometimes  a  note, 
which  has  been  indorsed  by  a  prior  indorser,  comes  back 
again  to  him  by  re-indorsement  in  the  course  of  business, 
when  he  will  thereby  become  reinstated  in  his  original 
rights  in  the  note;  but  he  will  have  no  claim  upon  any  of 
the  indorsers  whose  names  appear  on  the  note  subsequent 
to  his  own.  The  indorsement  of  a  note  amounts  to  a  con- 
tract on  the  part  of  the  indorser,  unless  he  qualifies  his 
indorsement,  that  he  will  pay  the  indorsee,  or  other  holder, 
the  amount  due,  upon  receiving  notice  of  the  dishonor  of 
the  note. 

Civil  Code,  Sections  3116,  3120. 

Section  750.— INDORSEMENT  "WITHOUT  RE- 
COURSE."— An  indorsement  may  be  so  qualified  that  the 
liability  of  the  indorser  will  be  greatly  limited.  Thus,  if 
the  indorser  writes  his  name  on  the  back  of  the  note,  and 
adds  the  words,  "without  recourse,"  he  thus  notifies  the 
person  to  whom  he  transfers  the  note  that  he  will  not  be 
responsible  as  an  indorser,  and  cannot  be  held  liable  in 
case  the  maker  does  not  pay.  But  there  are  circumstances 
under  which  the  indorser  "without  recourse"  will  neverthe- 
less be  liable.  By  the  act  of  transferring  and  deli\ering  the 
note  to  another,  although  indorsed  "without  recourse,"  the 
indorser  impliedly  warrants  that  the  note  is  valid,  that  the 
signatures  of  prior  parties  whose  names  appear  thereon 
are  genuine,  that  the  note  has  not  been  paid,  and  that  he 
himself  has  practiced  no  fraud  in  the  transfer. 

Section  751.— RIGHTS  OF  INDORSEE  IN  DUE 
COURSE  OF  BUSINESS.— An  indorsee  in  due  course  of 
business,  who  acquires  for  value  a  promissory  note  duly 
indorsed,  before  its  apparent  maturity,  and  without  knowl- 
edge of  its  actual  dishonor,  gets  an  absolute  title  to  the 
note.  It  is  thereafter  valid  in  his  hands,  notwithstanding 
any  defect  in  the  title  of  the  person  from  whom  he  acquired 


NOTES  AND  MORTGAGES.  435 

it.  It  has  been  said  that  the  law  of  California  cuts  off  all 
defenses  on  the  part  of  the  maker  of  a  note,  as  against  a 
holder  in  due  course  of  business. 

Civil  Code,  Sections  3123,  3124. 

Section  752.— WHEN  NOTE  MUST  BE  PRESENTED 
FOR  PAYMENT. — Many  vexatious  questions  constantly 
arise  about  the  presentation  of  a  note  for  payment,  and 
these  usually  refer  to  the  indorsers.  The  maker  is  bound 
whether  the  note  is  presented  to  him  or  not,  for  he  agrees 
to  pay  it  at  all  events.  But  the  indorser  occupies  a  diffei- 
ent  position.  He  agrees  to  pay  if  the  note  is  dishonored 
The  indorser  is  only  a  surety.  So,  before  the  indorser  can 
be  called  upon  for  the  money,  the  holder,  whoever  he  is, 
must  try  to  collect  the  money  from  the  maker  of  the  note. 
The  Legislature  of  California  has  prescribed  by  law  when 
a  note  must  be  presented  for  payment.  The  law  provides, 
that  a  note  payable  on  demand  may  be  presented  to  the 
maker  for  payment  upon  any  day ;  but  a  note  made  payable 
at  a  certain  specified  time  must  be  presented  for  payment 
upon  the  day  it  is  due.  It  must  be  presented  within  rea- 
sonable hours ;  and  if  it  be  payable  at  a  bank,  within  the 
usual  banking  hours  of  the  vicinity,  unless  the  person  to 
whom  it  should  be  presented  consents  to  its  being  pre- 
sented at  any  hour  of  the  day.  What  are  reasonable  hours, 
within  which  the  note  must  be  presented,  will  depend  upon 
circumstances.  If  the  maker  has  a  place  of  business,  it 
must  be  presented  within  the  usual  business  hours  of  the 
place  or  town ;  if  presented  at  the  maker's  residence,  it  may 
be  presented  during  the  whole  day  until  the  hours  of  rest 
in  the  evening. 

Civil  Code,  Section  3131. 

Section  753.— BY  WHOM  NOTE  MUST  BE  PRE- 
SENTED FOR  PAYMENT.— The  holder  of  the  note  must 
present  it  to  the  maker.  By  this  is  not  meant  that  the 
holder  should  go  in  person  and  present  the  note.    He  may 


436  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

go  in  person,  or  he  may  send  his  agent  or  attorney.  If 
the  holder  is  dead,  at  the  time  the  note  is  due,  then  the 
executor  or  administrator  of  his  estate  can  present  the  note 
and  demand  payment. 

Section  754.— TO  WHOM  NOTE  MUST  BE  PRE- 
SENTED FOR  PAYMENT.— The  note  must  be  presented 
to  the  maker,  if  he  can  be  found  at  the  place  where  pre- 
sentment should  be  made.  If  the  maker  cannot  be  found 
there,  then  it  is  lawful  to  present  the  note  to  his  agent  in 
charge  of  his  place  of  business  or  other  place  specified  in 
the  note  as  the  place  of  payment.  It  may  be  presented 
to  a  clerk  of  the  maker  at  his  place  of  business ;  or  to  one 
partner  of  a  firm,  if  a  firm  note;  or  to  the  administrator  or 
executor  of  a  deceased  maker ;  or  to  an  employee  of  the 
maker  at  the  place  where  the  note  is  to  be  presented,  if 
one  can  be  found  there,  and  the  -maker  cannot  be  found. 

Section  755.— AT  WHAT  PLACE  NOTE  MUST  BE 
PRESENTED  FOR  PAYMENT.— A  note  which  specifies 
a  place  for  payment  must  be  presented  there.  It  is  a  com- 
mon thing  for  notes  to  be  made  payable  at  a  certain  bank, 
and  in  such  case  it  will  not  do  to  present  the  note  anywhere 
else,  and  so  as  to  any  particular  place  of  payment  specified 
m  a  note.  If  a  note  does  not  name  any  particular  place  for 
Its  payment,  then  it  must  be  presented  at  the  place  of  resi- 
dence or  the  place  of  business  of  the  maker,  or  wherever 
lie  may  be  found.  It  is  at  the  option  of  the  holder,  where 
no  place  is  specified  in  the  note,  whether  he  will  present 
it  to  the  maker  at  his  residence,  or  his  place  of  business, 
or  in  the  street,  or  at  any  other  place  which  may  appear 
convenient. 

Section  756.— WHAT  WILL  EXCUSE  PRESENT- 
MENT FOR  PAYMENT.— There  are  some  circumstances 
which  under  the  law  of  California  will  excuse  presentment 
for  payment.     If  the  maker  of  the  note  has  no  place  of 


NOTES  AND  MORTGAGES.  437 

business,  or  if  his  place  of  business  or  residence  cannot, 
with  reasonable  diligence,  be  ascertained,  then  presentment 
for  payment  is  excused  and  the  indorser  is  bound.  If  the 
maker  moves  away,  after  executing  the  note,  and  the  holder 
makes  diligent  inquiry,  and  cannot  learn  his  residence  or 
place  of  business  when  the  note  becomes  due,  the  failure 
to  present  the  note  to  the  maker  for  payment,  under  such 
circumstances,  will  not  relieve  the  indorser  from  liability. 
This  is  upon  the  principle  that  the  holder  has  done  all 
he  can  do,  has  shown  good  faith  and  diligence,  and  there 
is  no  reason  why  the  indorser  should  be  allowed  to  take 
advantage  of  a  circumstance  over  which  the  holder  of  the 
note  had  no  control. 


Section  757.— WHAT  IS  REASONABLE  DILIGENCE. 

— Reasonable  diligence  is  a  question  of  circumstances.  In- 
evitable accident  or  overwhelming  calamity  may  prevent 
the  holder  of  a  note  from  presenting  it  for  payment  to  the 
maker  on  the  day  it  is  due,  yet  if  he  does  present  it  at  the 
very  earliest  practicable  time  thereafter,  it  will  be  sufficient. 
For  it  may  happen  that  the  holder  had  the  intention  in  good 
faith  to  present  the  note  at  the  proper  time,  yet  all  inter- 
course is  stopped  between  the  places  where  the  holder  and 
the  maker  live,  by  freshets,  or  by  violent  storms,  or  earth- 
quakes, or  other  unforeseen  conditions  of  natural  objects 
rendering  travel  or  communication  impossible ;  or  the  pres- 
ence of  some  dread  and  contagious  disease  in  one  or  the 
other  neighborhood,  such  as  the  yellow  fever,  or  cholera, 
or  smallpox,  renders  commercial  intercourse  impossible; 
or  a  political  revolution  may  exist  in  the  place  where  the 
holder  or  the  maker  lives,  and  by  a  blockade,  or  a  battle, 
prevent  the  holder  from  presenting  the  note  on  the  day 
when  it  is  due;  or  war  may  be  going  on  between  the  coun- 
try where  the  maker  lives  and  the  country  where  the  holder 
resides.  In  all  the  cases  above  supposed,  if  the  note  is 
presented  within  a  reasonable  time  after  the  prohibitive 
obstacle  is  removed,  it  will  be  held  sufficient  under  the  law 


438  BUSINESS  LAWS   FOR  BUSINESS   MEN. 

Section  758.— WHEN  A  NOTE  IS  DISHONORED.— 

A  note  is  dishonored  when  it  is  not  paid,  on  presentment 
to  the  maker  for  that  purpose;  and  it  is  also  dishonored 
when  it  is  not  paid  without  presentment,  when  presentment 
is  excused. 

Civil  Code,  Section  3141. 

Section  7.'?9.— NOTICE  OF  DISHONOR.— If  the  holder 
wishes  to  rrake  the  indorser  pay  the  note,  after  vainly  at- 
tempting to  collect  it  from  the  maker,  he  must  give  the 
indorser  notfre  of  the  dishonor  of  the  note.  He  may  give 
the  notice  in  person,  or  through  his  agent.  A  Notary,  at- 
torney, or  bank,  or  other  agent  for  collection,  may  give  the 
notice  as  the  agent  of  the  holder.  If  there  are  several  in- 
dorsers  on  a  note,  and  notice  of  dishonor  is  given  by  the 
holder  to  the  last  indorser,  he  in  turn  must  give  notice  of 
the  dishonor  to  the  indorser  immediately  before  him,  other- 
wise he  cannot  reimburse  himself  for  the  amount  he  is 
compelled  to  pay  the  holder. 

Civil  Code,  Section  3142. 

Section  760.— HOW  NOTICE  OF  DISHONOR  MAY 
BE  GIVEN. — A  notice  of  dishonor  may  be  given  by  deliv- 
ering it  to  the  indorser,  personally,  at  any  place ;  or,  by 
delivering  it  to  some  person  of  discretion,  at  the  place  of 
residence  or  business  of  the  indorser,  apparently  acting 
for  him ;  or,  by  getting  the  best  information  obtainable  of 
the  place  of  residence  of  the  indorser,  and  depositing  the 
notice  in  the  mail  directed  to  the  indorser  at  that  place, 
postage  paid.  In  case  of  the  death  of  the  indorser,  the 
notice  must  be  given  to  his  executor  or  administrator,  or 
if  there  is  no  executor  or  administrator,  then  to  any  mem- 
ber of  his  family  who  resided  with  him  at  his  death,  or 
if  he  had  no  family,  then  it  must  be  mailed  to  his  last 
place  of  residence.  A  notice  of  dishonor  sent  to  an  in- 
dorser after  his  death  is  nevertheless  valid,  if  the  person 


NOTES  AND  MORTGAGES.  439 

sending  it  was   ignorant  of  his   death,  and  could  not  by 
ordinary   diligence   have   ascertained   the   fact. 
Civil  Code,  Sections  3144,  3145,  3146. 

Section  761.— WHEN  NOTICE  OF  DISHONOR  MUST 
BE  GIVEN. — If  the  notice  of  dishonor  of  a  note  is  not 
given  by  mail,  then  it  must  be  given  either  on  the  same 
day  the  maker  fails  to  pay  it,  or  on  the  next  business  day 
thereafter.  When  notice  of  dishonor  is  given  by  mail,  it 
must  be  deposited  in  the  post-office  in  time  for  the  first 
mail  which  closes  after  noon  of  the  first  business  day  suc- 
ceeding the  dishonor,  and  which  leaves  the  place  where  the 
note  was  dishonored  for  the  place  to  which  the  notice  should 
be  sent.  The  holder  has  at  least  the  whole  forenoon  of  the 
first  business  day  after  the  dishonor  to  send  off  the  notice. 
One  of  several  indorsers,  who  receives  notice  of  dishonor 
trom  the  holder  of  the  note,  has  the  same  time  to  give 
notice  to  another  indorser;  that  is,  he  must  give  notice  to 
a  prior  indorser  either  on  the  same  day  he  receivesr  his 
notice  from  the  holder,  or  on  the  next  business  day,  unless 
he  gives  notice  by  mail,  which  must  be  in  the  same  man- 
ner as  the  holder  is  required  to  give  notice  by  mail. 
Civil  Code,  Sections  3147,  3148,  3150. 

Section  762.— FORM  OF  NOTICE  OF  DISHONOR.— 

No  particular  form  of  notice  is  necessary.  It  may  be  given 
m  any  form  which  describes  the  note  with  reasonable 
certainty,  and  substantially  informs  the  party  receiving  it 
that  the  note  has  been  dishonored.  The  following  is  a 
torm  of  notice  in  writing,  to  be  served  on  the  indorser : — 

,  Cal., ,  190.. 

JOHN  GREEN,:— 

Dear  Sir:  You  are  hereby  notified  that  the  certain 
note  made  and  delivered  by  John  Smith  to  Samuel  Stokes, 
dated  April  1st.  1901,  for  $500,  and  interest  at  8  per  cent  per 
annum,  and  indorsed  April  1st,  1902,  by  you,  is  now  held  by 
me;  that  on  the  day  when  said  note  was  due  I  presented 


440  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

it  for  payment  to  the  said  John  Smith  and  demanded 
payment,  but  he  failed  and  refused  to  pay  the  same ;  and  I 
hereby  notify  you  that  I  will  hold  you  for  the  amount  due 
on  said  note.  JAMES  BROWN. 

Section  763.— WHEN  NOTICE  OF  DISHONOR  IS 
EXCUSED. — Notice  of  the  dishonor  of  a  note  is  excused, 
when  the  holder  cannot,  with  reasonable  diligence,  ascer- 
tain either  the  place  of  residence  or  business  of  the  indorser 
to  be  charged ;  or,  when  there  is  no  mail  communication 
between  the  town  of  the  holder  and  the  town  in  which  the 
place  of  residence  or  business  of  the  party  to  be  charged 
is  situated;  or,  -when  the  notice  is  waived  by  the  party  him- 
self upon  whom  it  was  to  be  served.  If,  before  or  after  a 
note  becomes  due,  an  indorser  has  received  full  security, 
or  the  maker  has  assigned  all  his  estate  to  him  as  such 
security,  presentment  and  notice  to  him  are  excused.  De- 
lay in  giving  notice  of  dishonor  is  also  excused,  when 
caused  by  circumstances  which  the  holder  could  not  have 
avoided  by  the  exercise  of  reasonable  care  and  diligence — 
as,  by  an  epidemic,  or  riot,  or  war,  or  flood,  or  storm. 
Civil  Code,  Sections  3156,  3157,  3158. 

Section  764.— PROTEST  OF  FOREIGN  NOTE.— What 

has  been  said  of  notice  of  dishonor  applies  only  to  a  note 
made  and  payable  in  California.  A  note  made  in  a  foreign 
country,  or  in  another  State,  and  sent  to  this  State  for  col- 
lection and  dishonored,  must  be  protested  by  a  Notary 
Public. 

Section  765.— WHEN  SUIT  TO  COLLECT  NOTE 
CAN  BE  BROUGHT.— In  California  a  suit  to  collect  a 
note  can  be  brought  at  any  time  within  four  years  after 
it  is  due,  provided  the  note  was  made  in  this  State.  If 
the  note  was  made  out  of  the  State,  a  suit  can  be  brought 
in  this  State  to  collect  it  at  any  time  within  two  years  after 
it  is  due. 

Code  of  Civil  Procedure,  Sections  337,  338. 


NOTES  AND  MORTGAGES.  441 

Section  766.— IN  WHAT  COURT  SUIT  TO  COLLECT 
NOTE  MUST  BE  BROUGHT.— In  all  cases  where  the 
sum  sued  for  amounts  to  $300,  exclusive  of  interest,  the 
suit  must  be  brought  in  the  Superior  Court.  In  cases 
where  the  sum  sued  for,  exclusive  of  interest,  amounts  to 
less  than  $300,  the  suit  must  be  brought  in  the  Justice 
Court. 

Code  of  Civil  Procedure,  Sections  Jd,  112. 

Mortgages 

Section  767.— MORTGAGE  SECURITY.— The  ordinary 
security  for  the  payment  of  a  promissory  note  is  a  mort- 
gage of  either  personal  or  real  property.  By  a  mortgage 
the  debtor  secures  his  creditor  without  the  necessity  of 
changing  the  possession  of  the  property. 

Section  768.— WHAT  INTEREST  IN  REAL  PROP- 
ERTY MAY  BE  MORTGAGED.— Any  interest  in  real 
property  which  is  capable  of  being  transferred  may  be 
mortgaged.  Interest  in  real  property  covering  the  absolute 
title  in  fee  simple  may,  of  course,  be  mortgaged.  But  the 
right  to  mortgage  does  not  stop  here.  The  interest  of  an 
heir  or  devisee  under  a  will,  being  a  vested  right,  may  be 
mortgaged.  One  in  possession  of  the  land  under  a  verbal 
agreement  to  purchase  may  mortgage  the  interest  that  he 
has.  Any  interest  in  the  reversion  of  lands,  or  any  interest 
in  lands  which  will  surely  come  to  a  person  upon  the  hap- 
pening of  some  event,  may  be  mortgaged. 
Civil  Code,  Section  2947. 

Section  769.— WHAT  PERSONAL  PROPERTY  MAY 
BE  MORTGAGED.— Mortgages  may  be  made  upon  all 
growing  crops,  including  grapes  and  fruit,  and  upon  any 
and  all  kinds  of  personal  property,  except  the  following : 

1.  Personal  property  not  capable  of  manual  delivery; 

2.  Articles  of  wearing  apparel  and  personal  adornment ; 

3.  The  stock  in  trade  of  a  merchant. 

Act  of  the  Legislature,  approved  February  20,  1909. 


442  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  770.— HOW  MORTGAGE  IS  EXECUTED 
AND  ACKNOWLEDGED.  —  A  mortgage  must  be  in 
writing,  and  signed  by  the  mortgagor.  It  should  be  re- 
corded, and  therefore  must  be  acknowledged  before  an  offi- 
cer authorized  to  administer  oaths.  It  is  usual  in  California 
to  have  a  mortgage  acknowledged  before  a  Notary  Public, 
but  an  acknowledgment  before  a  Justice  of  the  Peace,  or 
County  Clerk,  or  County  Recorder,  is  equally  good.  If 
the  person  executing  the  mortgage  cannot  write,  he  may 
sign  the  mortgage  by  an  X  or  mark,  with  two  witnesses  to 
his  signature. 

Section  771.— MORTGAGE  OF  MARRIED  WOMAN. 

— A  married  woman  may  mortgage  her  own  property,  with- 
out the  consent  of  her  husband,  and  without  his  joining 
her  in  the  mortgage  in  any  way.  A  married  woman's  ac- 
knowledgment to  a  mortgage  is  made  in  the  same  manner 
as  that  of  any  other  person. 

Section  772.— MORTGAGE  OF  MINOR.— A  minor  in 
California  cannot  under  the  age  of  18  make  a  contract 
relating  to  real  property.  Over  the  age  of  18  he  may  exe- 
cute a  mortgage  of  his  real  property,  but  it  is  voidable  at 
his  election  when  he  comes  of  age.  He  may  mortgage  his 
personal  property,  whether  under  or  over  18  years  of  age. 
provided  the  property  is  in  his  own  possession  or  control ; 
but  this  mortgage  is  also  subject  to  be  disaffirmed  by  him 
when  he  comes  of  age. 

Section  773.  —  MORTGAGE  OF  PARTNERSHIP 
PROPERTY. — Partners  may  make  a  mortgage  of  partner- 
ship property,  but  they  must  sign  their  own  names.  Thus, 
if  Samuel  Jones  and  James  Smith  are  partners,  doing  busi- 
ness under  the  firm  name  of  Jones  &  Smith,  their  mortgage 
of  partnership  property  should  not  be  signed  with  the  firm 
name,  "Jones  &  Smith,"  but  should  be  signed  with  their 
individual  names,  "Samuel  Jones.     James  Smith." 


NOTES  AND  MORTGAGES.  443 

Section  774.— RECORDING  MORTGAGES.— The  law 

of  California  provides  for  the  acknowledgment  and  record- 
ing of  mortgages,  real  or  personal.  The  mortgage  is  re- 
corded in  the  office  of  the  County  Recorder  of  the  county 
where  the  property  is  situated. 

Section  774a.— PROOF  OF  EXECUTION  OF  MORT- 
GAGE.— It  sometimes  happens  that  a  mortgage  is  made, 
but  not  acknowledged  by  the  mortgagor ;  and  the  holder 
of  the  mortgage  afterwards  desires  to  record  it.  Not  hav- 
nig  been  acknowledged  when  made,  it  is  not  entitled  to 
be  recorded.  But  the  law  provides  that  proof  of  the  exe- 
cution of  the  mortgage,  when  not  acknowledged,  may  after- 
wards be  made  by  either  the  mortgagor  or  the  mortgagee. 
Proof  is  made  by  going  before  a  Notary  Public,  or  other 
officer  authorized  to  take  acknowledgments,  who  upon  the 
evidence  presented  to  him  certifies  to  the  fact  of  the  execu  • 
tion  of  the  mortgage.  When  there  is  a  defect  in  the  No- 
tary's certificate,  any  party  interested  may  sue  in  the  Su- 
perior Court  and  obtain  a  judgment  correcting  the  cer- 
tificate. 

Section  775.— EFFECT  OF  RECORDING  MORT- 
GAGES OF  REAL  PROPERTY.— The  effect  of  recording 
a  mortgage  of  real  property  is  to  give  notice  to  the  world 
of  the  encumbrance  upon  it,  and  to  give  the  mortgage  prec- 
edence over  every  other  lien  which  subsequently  attaches 
to  the  property.  A  recorded  mortgage  has  precedence  over 
one  of  earlier  date  which  was  not  recorded,  and  of  which 
the  holder  of  the  recorded  mortgage  had  no  notice.  A  re- 
corded mortgage  is  good  against  an  attachment  or  home- 
stead subsequently  put  on  the  property,  or  any  other  lien 
subsequent  to  the  mortgage. 

Section  776.— EFFECT  OF  RECORDING  A  CHAT- 
TEL MORTGAGE.— A  mortgage  of  personal  property 
must  be  recorded  in  the  office  of  the  County  Recorder  of 


444  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

the  county  in  which  the  mortgagor  resides.  But  if  the 
mortgagor  resides  in  one  county,  and  the  property  is  situ- 
ated in  another  county,  then  the  mortgage  must  be  recorded 
in  both  counties.  If  the  property  is  removed  to  another 
county  by  the  mortgagor,  the  mortgagee  must,  within  thirty 
days,  cause  the  mortgage  to  be  recorded  in  the  county  to 
which  the  property  has  been  removed.  If  these  provisions 
are  complied  with,  a  chattel  mortgage,  properly  executed, 
gives  the  same  prior  lien  to  the  mortgagee  of  personal 
property  which  he  would  acquire  under  a  recorded  real 
estate  mortgage.  A  certified  copy  of  a  mortgage  of 
personal  property  once  recorded  may  be  recorded  in  any 
other  county. 

Civil  Code,  Sections  2959,  2964,  2965. 

Act  of  the  Legislature,  approved  February  22,  1909. 

Section  777.— MORTGAGE  NOT  RECORDED  GOOD 
BETWEEN  PARTIES.— Even  though  a  mortgage  is  not 
recorded,  it  is  good  between  the  parties  to  it,  if  the  mort- 
gage was  executed  and  signed  in  the  manner  provided  by 
law. 

Section    778.— MORTGAGE    ON    HOMESTEAD.— A 

mortgage  on  a  homestead  is  void  unless  it  is  signed  and 
acknowledged  by  both  husband  and  wife.  A  mortgage 
may  be  given  by  the  husband  alone,  on  community  property, 
if  there  is  no  homestead,  and  it  will  be  good.  But  the  law 
of  California  provides  that  a  mortgage  made  after  a  home- 
stead has  been  filed,  signed  by  the  husband  alone,  is  abso- 
lutely void.  The  homestead  may  be  mortgaged,  but  it 
must  be  by  the  joint  act  of  the  husband  and  wife.  They 
must  both  sign  the  mortgage  at  the  time  it  is  made,  and 
they  must  both  know  that  it  covers  the  homestead  property. 
So,  if  the  husband  signs  a  mortgage  on  the  homestead,  and 
his  wife  is  induced  to  sign  it  also,  but  under  the  belief  that 
the  mortgage  covers  other  property  alone,  it  will  not  be 


NOTES  AND  MORTGAGES.    *  445 

good  against  the  homestead.  A  mortgage  of  the  home- 
stead, to  be  valid,  must  be  the  united  act  of  the  husband 
and  wife. 

Civil  Code,  Section  1242. 

Section    779.— DECLARATION  OF    HOMESTEAD.— 

Sometimes  a  question  will  arise  as  to  whether  there  is  a 
legal  homestead  on  file,  sufficient  to  protect  the  property 
against  creditors.  This  question  will  be  easily  answered. 
by  getting  from  the  County  Recorder  a  copy  of  the  decla- 
ration of  homestead.  The  law  provides  what  must  be  stated 
•n  the  declaration  of  homestead  filed  with  the  County  Re- 
corder, and  from  what  property  the  homestead  may  be 
taken.  If  the  claimant  be  married,  the  homestead  may  be 
selected  from  the  community  property,  or  the  separate 
property  of  the  husband,  or,  with  the  consent  of  the  wife, 
from  her  separate  property.  When  the  claimant  is  not 
married,  but  is  the  head  of  a  family,  the  homestead  can  be 
selected  from  any  of  his  or  her  property.  In  order  to  select 
a  homestead,  the  claimant  must  sign  and  acknowledge  a 
declaration  and  file  it  for  record  in  the  office  of  the  County 
Recorder.  The  declaration  of  homestead  must  contain : 
O)  A  statement,  showing  that  the  person  making  it  is  the 
head  of  a  family;  or  when  the  declaration  is  made  by  the 
wife,  showing  that  her  husband  has  not  made  such  declara- 
tion, and  that  she  therefore  makes  the  declaration  for  their 
joint  benefit ;  (2)  a  statement  that  the  person  making  it 
is  residing  on  the  premises,  and  claims  them  as  a  home- 
stead ;  (3)  a  description  of  the  premises ;  (4)  an  estimate 
of  their  actual  cash  value. 

Civil  Code,  Sections  1237,  1238,  1261,  1263. 

Section  780.— FORM  OF  DECLARATION  OF  HOME- 
STEAD BY  HUSBAND  AND  WIFE.— The  following  is  a 
good  form  of  Declaration  of  Homestead  by  husband  and  wife, 
which  must  be  recorded  in  the  office  of  the  County  Recorder 
of  the  county  where  the  land  is  situated: — 


446  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

DECLARATION  OF  HOMESTEAD :  — Know  all  men 
by  these  presents,  that  we  do  hereby  certify  and  declare  that 
we  are  husband  and  wife,  and  that  we  do  now  at  the  time 
of  making  this  declaration  actually  reside  together  on  the 
land  and  premises  herein  described;  that  the  land  and  prem- 
ises on  which  we  reside  are  situate,  bounded,  and  described 
as  follows,  to-wit: — 

(Here  insert  description  of  land.) 

That  it  is  our  intention  to  use  and  claim  the  said  lot  of 
land  and  premises  above  described,  together  with  the  dwell- 
ing house  thereon,  and  its  appurtenances,  as  a  homestead, 
and  we  do  hereby  select  and  claim  the  same  as  a  home- 
stead ;  that  we  make  this  declaration  for  our  joint  benefit, 
and  we  declare  that  we  have  not  heretofore  made  a  declara- 
tion of  homestead ;  that  the  actual  cash  value  of  said  prop- 
erty we  estimate  to  be  $ 

In  witness  whereof,  we  have  hereto  set  our  hands  and 
seals  this day  of ,  190. . 


(Seal.) 
(Seal.) 


State  of  California,  ") 

County  of  J  ^^• 

On  this day  of ,  190. .,  before  me,  a  Notary 

Public  in  and  for  said  County  and  State,  personally  appeared 

and   , 

personally  known  to  me  to  be  the  persons  described  in  and 
who  executed  the  foregoing  Declaration  of  Homestead,  and 
they  acknowledged  to  me  that  they  executed  the  same. 

In  witness  whereof  I  have  hereunto  set  my  hand  and 

affixed  my  official  seal,  at  my  office,  on  this day  of 

190.. 


Notary  Public  in  and  for  the  County  of 
State  of  California. 


Commission  expires  ,  190. . 

Section  781.— FORM  OF  DECLARATION  OF  HOME- 
STEAD BY  HUSBAND.— The  following  is  a  good  form 


NOTES  AND  MORTGAGES.  447 

of  Declaration  of  Homestead  by  the  husband  alone,  and 
must  be  recorded  in  the  office  of  the  County  Recorder  of 
the  county  in  which  the  land  is  situated : —     . 

DECLARATION  OF  HOMESTEAD:— 

Know  all  men  by  these  presents,  that  I  do  hereby  cer- 
tify and  declare,  that  I  am  the  head  of  a  family;  that  I  do 
now  at  the  time  of  making  this  declaration  actually  reside 
with  my  family  on  the  land  and  premises  hereinafter  de- 
scribed; that  the  land  and  premises  on  which  I  reside  are 
situate,  bounded,  and  described  as  follows,  to-wit : — 

(Here  insert  description  of  land.) 

That  my  wife's  name  is 

That  it  is  my  intention  to  use  and  claim  the  said  lot  of 
land  and  premises  above  described,  together  with  the  dwell- 
ing house  thereon,  and  its  appurtenances,  as  a  homestead, 
and  I  do  hereby  select  and  claim  the  same  as  a  homestead ; 
that  I  make  this  declaration  for  the  joint  benefit  of  myself 
and  wife,  and  I  declare  that  my  wife  has  not  made  a  dec- 
laration of  homestead ;  that  the  actual  cash  value  of  said 
property  I  estimate  to  be  $ 

In  witness  whereof,  I  have  hereto  set  my  hand  and  seal 

this  -day  of ,  190.. 

(Seal.) 

State  of  California,  "I 

County  of  J  ^^• 

On  this day  of ,  190. .,  before  me,  a  Notary 

Public  in  and  for  the  said  County  and  State,  personally  ap- 
peared   ,  personally  known  to  me  to 

be  the  person  described  in  and  who  executed  the  foregoing 
Declaration  of  Homestead,  and  he  acknowledged  to  me  that 
he  executed  the  same. 

In  witness  whereof  I  have  hereunto  set  my  hand  and 

affixed  my  official  seal,  at  my  office,  on  this day  of 

,  190... 


Notary  Public  in  and  for  the  County  of 
State  of  California. 


Commission  expires ,  190. . 


448  BUSINESS   LAWS  FOR  BUSINESS   MEN.  ' 

Section  782.— FORM  OF  DECLARATION  OF  HOME- 
STEAD BY  WIFE.— The  following  is  a  good  form  of 
Declaration  of  Homestead  by  the  wife  alone,  and  must  be 
recorded  in  the  office  of  the  County  Recorder  of  the  county 
in  which  the  land  is  situated : — 

DECLARATION  OF  HOMESTEAD:— 
Know  all  men  by  these  presents,  that  I  do  hereby  cer- 
tify and  declare,  that  I  do  now  at  the  time  of  making  this 
declaration  actually  reside  with  my  family  on  the  land  and 
premises  hereinafter  described;  that  the  land  and  premises 
on  which  I  reside  are  situate,  bounded,  and  described  as 
follows,  to-wit : — • 

(Here  insert  description  of  land.) 

That  my  husband's  name  is  

That  it  is  my  intention  to  use  and  claim  the  said  lot  of 
land  and  premises  above  described,  together  with  the  dwell- 
ing house  thereon,  and  its  appurtenances,  as  a  homestead, 
and  I  do  hereby  select  and  claim  the  same  as  a  homestead ; 
that  I  make  this  declaration  for  the  joint  benefit  of  myself 
and  husband,  and  I  declare  that  my  husband  has  not  made 
a  declaration  of  homestead ;  that  the  actual  cash  value  of 
said  property  I  estimate  to  be  $ 

In  witness  whereof  I  have  hereunto  set  my  hand  and  seal 

this   day  of  190.. 

(Seal.) 

State  of  California,  ) 

County  of P^' 

On  this day  of ,  190. .,  before  me,  a  Notary 

Public  in  and  for  the  said  County  and  State,  personally 

appeared ,  personally  known  to  me 

to  be  the  person  described  in  and  who  executed  the  fore- 
going Declaration  of  Homestead,  and  she  acknowledged  to 
me  that  she  executed  the  same. 

In   witness   whereof  I   have  hereunto  set  my  hand  and 

affixed  my  official  seal,  at  my  office,  on  this day  of 

,190.. 

Notary  Public  in  and  for  the  County  of , 

, State  of  California. 
Commission  expires    190.. 


NOTES  AND  MORTGAGES.  449 

Section  783.— VALUE  OF  HOMESTEAD.— The  home- 
stead of  husband  and  wife  must  not  exceed  in  value  the 
sum  of  $5,000.  The  value  of  the  homestead  selected  by 
the  head  of  a  family  other  than  the  husband  or.  wife  must 
not  exceed  in  value  the  sum  of  $1,000.  Besides  the  hus- 
band or  wife,  any  other  person  may  take  a  State  homestead, 
as  the  head  of  a  family,  who  has  residing  on  the  premises 
and  is  caring  for  and  maintaining,  his  or  her  minor  child, 
or  minor  grandchild,  or  the  minor  child  of  his  or  her  de- 
ceased wife  or  husband,  a  minor  brother  or  sister  or  the 
minor  child  of  a  deceased  brother  or  sister,  a  father,  mother, 
grandmother,  or  grandfather  of  a  deceased  husband  or  wife, 
or  an  unmarried  sister. 

Civil  Code,  Section  1261. 

Section  784.— FORM  OF  REAL  ESTATE  MORT- 
GAGE.— A  good  form  of  mortgage  on  real  estate  is  as 
follows,  the  blank  spaces  to  be  filled  in  with  the  proper 
names,  dates,  amounts,  and  descriptions : — 

This  mortgage  made  the day  of ,  in  the 

year  190.  . ,  by   • 

Mortgagor   to   Mortgagee   

Witnesseth 

That  the  Mortgagor   mortgages  to  the  Mortgagee 

those  certain  lots,  or  tracts  of  land  situated  in 

County,  State  of  California,  particularly  de- 
scribed as  follows,  to-wit : — 

(Here  insert  description  of  property.) 


as  security  for  the  payment  of  a  certain  obligation  in  writ- 
ing, of  which  the  following  is  a  copy : — 


450  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

,  Cal., ,190.. 

after  date  

for  value  received,  ....  promise  to  pay 

,  or  order,  at , 

Dollars,  with  inter- 
est from   at  the 

rate  of  per  cent  per  annum,  payable  semi- 
annually, principal  and  interest  payable  in  United  States 
Gold  Coin.  Interest  if  not  paid  when  due,  to  be  added  to 
the  principal  and  bear  interest  at  the  same  rate  until  paid. 


$. 


But  in  case  default  be  made  in  the  payment  of  either  the 
principal  or  any  installment  of  interest  provided  for  in  said 
obligation  when  due,  then  the  whole  shall  be  due  at  the 
option  of  the  holder  of  the  said  obligation,  and  action  may 
be  immediately  commenced,  without  notice,  to  foreclose 
this  mortgage. 

And  the  plaintiff,  in  action  to  foreclose  this  mortgage 
shall,  upon  riling  the  complaint  in  foreclosure,  be  entitled 

.TO per  cent  on  the  amount  due  on  said  obligation 

as  counsel  fees. 

And  the  holder  of  said  obligation  may  pay  all  taxes  or 
other  encumbrances  now  subsisting  or  hereafter  to  be  laid 
upon  said  land,  and  may  at  his  option  keep  fully  insured 
against  all  risks  by  fire  the  buildings  which  are  now  and 
may  be  hereafter  erected  thereon,  and  such  payment  shall 
be  allowed  with  interest  thereon  at  the  rate  of  one  per  cent 
per  month. 

And  the  cost  of  foreclosure  and  sale,  counsel  fees,  and 
all  payments  herein  provided  for,  are  and  shall  be  a  charge 
upon  the  property  described  herein,  and  repayable  on  de- 
mand, and  payable  out  of  the  proceeds  of  the  sale  thereof. 

IN  WITNESS  WHEREOF,  the  said  Mortgagor, 

,  has  hereunto  set hand  . . .  and  seal . . . , 

the  day  and  year  first  above  written. 

: (Seal.) 

(Seal.) 

(Seal.) 


NOTES  AND  MORTGAGES.  451 

State  of  California,  } 

County  of P®* 

On  this day  of ,  A.  D.  one  thousand  nine 

hundred  and    ,  before  me , 

a  Notary  Public  in  and  for  said  County  and  State,  residing 
therein,  duly  commissioned  and  sworn,  personally  appeared 


known  to  me  to  be  the  person  whose  name  is  subscribed 
to  and  who  executed  the  within  instrument,  and  he  ac- 
knowledged to  me  that  he  executed  the  same. 

In  witness  whereof,  I  have  hereunto  set  my  hand  and 

affixed  my  official  seal  at  my  office  in  the 

County  of ,  the  day  and  year  in  this  certificate 

first  above  written. 


Notary  Public  in  and  for  the  County  of 
State  of  California. 


Commission  expires    ,   190. 


Section  785.— RULES  WHICH  APPLY  TO  CHATTEL 
MORTGAGES. — The  law  provides  how  a  mortgage  of 
personal  property  must  be  made,  and  because  this  kind  of 
mortgage  i*s  on  movable  property,  subject  to  transportation 
from  one  place  to  another,  the  law  makes  certain  strict 
rules  which  must  be  applied  to  the  making  of  every  chattel 
mortgage  in  this  State.  A  mortgage  of  personal  property 
is  void  as  against  creditors  of  the  mortgagor,  unless  it  is 
accompanied  by  the  affidavit  of  all  the  parties  thereto  that 
it  is  made  in  good  faith  and  without  any  design  to  hinder, 
delay,  or  defraud  creditors ;  and  a  mortgage  without  this 
affidavit  is  also  void  as  against  subsequent  purchasers  and 
encumbrancers  of  the  property  who  become  such  in  good 
faith  and  for  value.  The  law  also  provides  that  a  mort- 
gage of  personal  property,  to  be  valid  against  creditors  of 
the     mortgagor,     or     against     subsequent     purchasers     or 


452  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

encumbrancers  in  good  faith  and  for  value,  must  be  acknowl- 
edged, or  proved,  certified,  and  recorded  in  like  manner  as 
deeds  of  real  property. 

Civil  Code,  Section  2957. 

Section  786.— FORM  OF  CHATTEL  MORTGAGE.— 

A  good  form  of  mortgage  ,  on  personal  property  is  as  fol- 
lows, the  blank  spaces  to  be  filled  in  with  the  proper  dates, 
names,  amounts,  and  descriptions : — 

THIS  MORTGAGE  made  the day  of ,  in 

the  year  190. . ,  by   

by  occupation   a    ,   Mortgagor, 

to ,  by  occupation  a 

,  Mortgagee. 

WITNESSETH:  That  the  Mortgagor  mortgages  to  the 
Mortgagee   all    that   certain    personal    property,    with    the 

increase  thereof,  situated  in County,  State 

of  California,  and  more  particularly  described  as  follows, 
to-wit : — 

(Here  insert  description  of  property.) 


as  security  for  the  payment  to  the  said  Mortgagee  of  the 

sum  of Dollars,  Gold  Coin 

of  the  United  States,  on  the day  of ,  190. .. 

with   interest  thereon  at  the  rate  of   per  cent  per 

annum,  payable  semi-annually,  according  to  the  terms  and 
conditions  of  a  certain  promissory  note  of  which  the  fol- 
lowing is  a  copy  : — 

,Cal., ,190.. 

after  date   , 

for  value  received,  ....  promise  to  pay 

,  or  order,  at   

Dollars,   with   interest 

from ,  at  the  rate  of • 


NOTES  AND  MORTGAGES.  453 

per  cent  per  annum,  payable  semi-annually,  principal  and 
interest  payable  in  United  States  Gold  Coin.  Interest,  if 
not  paid  when  due,  to  be  added  to  the  principal  and  bear 
interest  at  the  same  rate  until  paid. 


$. 


This  mortgage  is  also  made  as  security  for  all  other  sums 
now  due  or  that  may  hereafter  become  due  on  account  or 
otherwise  from  the  mortgagor  to  the  mortgagee.  It  is  also 
agreed  that  in  case  the  mortgagee  should  bring  suit  to  fore- 
close this  mortgage,  upon  filing  the  complaint  he  shall  be 
allowed  a  reasonable  attorney  .fee,  the  same  to  be  secured 
by  this  mortgage. 

It  is  also  agreed  that  if  the  mortgagor  shall  fail  to  make 
any  payment  as  in  said  promissory  note  or  in  this  mortgage 
provided,  or  if  the  mortgagor  shall  sell  the  said  property 
herein  mortgaged  without  the  written  consent  of  the  mort- 
gagee, or  remove  the  same  from  the  County  of , 

or,  if  the  mortgagee  shall  hereinafter  deem  himself  insecure, 
then  in  either  of  the  above  events  the  mortgagee  may  take 
possession  of  the  said  personal  property,  using  all  neces- 
sary force  so  to  do,  and  immediately  proceed  to  sell  the 
same  in  the  manner  provided  by  law,  and  without  fore- 
closure, and  from  the  proceeds  may  pay  the  whole  amount 
due  the  said  mortgagee,  as  specified  in  said  note  and  mort- 
gage. 

Signed  and  executed  in  the  presence  of 

(Seal.) 

(Seal.) 

(Seal.) 

State  of  California,  \ 

County  of P®' 

,  the  mortgagor. . .  in  the  foregoing 

mortgage   named,   and    , 

the  mortgagee  in  said  mortgage  named,  being  duly  sworn, 
each  for  himself  doth  depose  and  say,  that  the  aforesaid 


454  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

mortgage  is  made  in  good  faith  and  without  any  design  to 
hinder,  delay,  or  defraud  any  creditor  or  creditors. 

(Seal.) 

(Seal.) 

(Seal.) 

Subscribed  and  sworn  to  before  me  this 

day  of ,  190.. 


Notary  Public  in  and  for County,  California. 

State  of  California,  ) 

County  of ) 

On  this    day  of    ,   190..,  before  me,  a 

Notary  Public  in  and  for  the  County  of ,  residing 

therein,  duly  commissioned  and  sworn,  personally  appeared 

,  known  to  me  to 

be  the  person  described  in,  whose  name  is  subscribed  to, 
and  who  executed  the  within  instrument,  and  he  acknowl- 
edged to  me  that  he  executed  the  same. 

IN   WITNESS   WHEREOF,   I  have  hereunto  set  my 
hand  and  affixed  my  official  seal  at  my  office  in  the  said 

County  of ,  the  day  and  year  in  this  certificate 

first  above  written. 


Notary  Public  in  and  for  the  County  of 
State  of  California. 
Commission  expires ,  190. 


Section  787.— DEED  AS  SECURITY  AND  AGREE- 
MENT TO  DEED  BACK.— When  a  deed  of  property  is 
given  as  security  for  a  note,  and  a  written  agreement  is 
given  to  the  maker  that  the  property  will  be  deeded  back 
to  him  when  the  note  is  paid,  the  transaction  constitutes 
a  mortgage,  and  nothing  more.  Many  lawsuits  have  oc- 
curred, where  the  holder  of  such  a  deed  has  claimed  to  be 
the  absolute  owner  of  the  property,  but  the  courts  have 
invariably  held  that  it  is  nothing  more  than  a  mortgage, 
and  that  the  holder  must  bring  a  foreclosure  suit  upon  it, 
just  the  same  as  if  it  were  a  mortgage  in  the  ordinary  terms. 


NOTES  AND  MORTGAGES.  455 

Section  788.— LAWFUL  INTEREST.— There  is  no  law 

against  usury  in  California.  A  note  may  specify  any  rate 
of  interest,  and  it  will  be  allowed,  according  to  the  terms 
of  the  note,  until  the  entry  of  judgment  in  a  suit  to  collect 
the  note. 

Civil  Code,  Section  1918. 

Section  789.— LEGAL  RATE  WHERE  NO  INTEREST 
SPECIFIED. — If  a  note  does  not  specify  any  rate,  interest 
is  payable  on  it  at  the  rate  of  seven  per  cent  per  annum 
after  the  money  becomes  due.  Thus,  if  a  note  is  made 
payable  in  sixty  days,  which  does  not  specify  any  rate  of 
interest,  the  legal  rate  of  seven  per  cent  is  payable  on  it, 
beginning  with  the  termination  of  the  sixty  days.  If  part 
of  the  note  is  paid  in  sixty  days,  no  interest  is  payable 
except  on  so  much  of  it  as  remains  unpaid.  In  the  compu- 
tation of  interest  for  a  period  less  than  a  year,  360  days 
are  deemed  to  constitute  a  year. 
Civil  Code,  Section  1917. 

Section  790.— COMPOUND  INTEREST.— The  maker 
of  a  note  may  lawfully  agree,  and  may  insert  in  the  note, 
that  if  the  interest  is  not  punctually  paid  it  shall  become 
a  part  of  the  principal,  and  thereafter  bear  the  same  rate 
of  interest  as  the  principal  debt. 

Civil   Code,   Section   1919. 

Section  791.— INTEREST  ON  JUDGMENT.— Interest 
is  payable  on  judgments  recovered  in  the  courts  of  this 
State  at  the  rate  of  seven  per  cent  per  annum,  but  such 
interest  cannot  be  compounded  in  any  manner. 
Civil  Code,  Section  1920. 

Section  792.— WHO  MUST  PAY  TAXES  ON  MORT- 
GAGE.— The  provision  of  the  Constitution,  prohibiting  the 
making  of  any  contract  for  the  mortgagor  to  pay  the  taxes, 
has  been  repealed.    The  mortgagee  and  mortgagor  may  now 


456  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

make  any  agreement  they  please  about  the  payment  of  the 
taxes,  and  it  is  lawful  to  provide  in  the  mortgage  that  the 
mortgagor  shall  pay  the  taxes  on  the  mortgage. 

Section  793.— INSURANCE  ON  MORTGAGED 
BUILDINGS. — Either  the  mortgagor  or  mortgagee  may 
keep  the  buildings  on  the  land  insured.  A  mortgage  gen- 
erally provides  that  the  mortgagee  may  insure  the  build- 
ings, and  the  mortgagor  must  repay  the  amount  paid  as  pre- 
miums, with  interest. 

Section  794.— ATTORNEY  FEES.— There  is  no  lien  on 
mortgaged  property  for  attorney  fees,  unless  the  mortgage 
expressly  so  provides. 

Section  795.— MORTGAGE  FOR  FUTURE  AD- 
VANCES.— A  mortgage  may  be  made  which  will  cover 
and  secure  not  only  a  sum  of  money  paid  in  hand,  but  also 
future  advances  of  the  mortgagee  to  the  mortgagor.  Such 
a  mortgage  is  good,  and  avoids  the  necessity  of  a  number 
of  mortgages  where  money  is  advanced  at  different  times 
to  the  same  person. 

Section  796.— FIRST   AND   SECOND   MORTGAGES. 

— A  mortgage  properly  executed  and  recorded  takes  prec- 
edence of  other  mortgages  subsequently  placed  on  the  same 
property.  If  the  property  is  sold  under  foreclosure,  the 
first  mortgage  must  be  first  paid. 

Section  797.— IN  WHAT  COURT  SUIT  MUST  BE 
BROUGHT  TO  FORECLOSE  MORTGAGE.— A  suit  to 
foreclose  a  mortgage  on  personal  property  can  be  brought 
in  either  the  Justice  Court  or  the  Superior  Court,  if  neither 
the  amount  of  the  lien  nor  the  value  of  the  property  is  as 
much  as  $300.  If  the  mortgage  lien  is  as  much  as  $300, 
or  if  the  value  of  the  property  mortgaged  is  $300  or  over, 


NOTES  AND  MORTGAGES.  457 

the  suit  to  foreclose  the  mortgage  must  be  brought  in  the 
Superior  Court.  All  suits  to  foreclose  mortgages  on  real 
property  must  be  brought  in  the  Superior  Court. 

Section  798.— WHEN  MORTGAGE  IS  OUTLAWED. 

— A  mortgage  is  outlawed  four  years  after  it  becomes  due. 
A  suit  to  foreclose  a  mortgage  must  be  commenced  within 
four  years  after  it  is  due,  otherwise  the  suit  cannot  be 
maintained. 

Code  of  Civil  Procedure,  Section  337. 

Section  799.— WHAT  PROPERTY  CAN  BE  SOLD  TO 
SATISFY  MORTGAGE.— Only  so  much  of  the  mortgaged 
property  can  be  sold  as  will  bring  enough  to  pay  the  debt 
and  the  costs  and  expenses  of  foreclosure.  Therefore, 
neither  real  estate  nor  personal  property  will  be  sold  in 
one  lot,  to  satisfy  a  mortgage  debt,  if  it  appears  that  a  sale 
of  a  part  only  will  bring  enough  to  pay  the  debt  and  costs 
and  expenses. 

Section  800.— ORDER  IN  WHICH  PROPERTY 
MUST  BE  SOLD.— As  a  general  rule,  in  the  sale  of 
mortgaged  property  under  foreclosure,  where  the  mortgage 
covers  both  real  and  personal  property,  the  court  in  its 
decree  of  foreclosure  will  direct  that  the  personal  property 
be  sold  first.  When  the  sale  is  of  real  property,  consisting 
of  several  known  lots  or  parcels,  they  must  be  sold  sep- 
arately. The  judgment  debtor,  if  present  at  the  sale,  may 
also  direct  the  order  in  which  property,  real  or  personal, 
shall  be  sold,  when  such  property  consists  of  several  known 
lots  or  parcels,  or  of  articles  which  can  be  sold  to  advan- 
tage separately,  and  the  Sheriff  must  follow  such  directions. 
Code  of  Civil  Procedure,  Section  694. 

Section  SOL— COSTS  OF  FORECLOSURE.— The  costs 
of  foreclosure,  including  reasonable  attorney  fees,  when 
provided  for  in  the  mortgage,  are  taxed  to  the  mortgagor, 


458  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

and  must  be  paid  out  of  the  proceeds  of  the  sale  of  the 
mortgaged  premises. 

Section  802.— WHO  MAY  BUY  AT  FORECLOSURE 
SALE. — Any  person  may  buy  in  the  property  at  a  fore- 
closure sale,  except  the  officer  making  the  sale,  or  his 
deputy.  The  mortgagee  may  buy  in  the  property,  if  he 
will  bid  higher  than  other  bidders,  or  if  no  one  else  appears 
to  bid. 

Section  803.— CERTIFICATE  OF  SALE.— The  officer 
making  the  sale  gives  to  the  purchaser  a  certificate  of  sale, 
containing  a  particular  description  of  the  real  property  sold, 
the  price  bid  for  each  distinct  lot  or  parcel,  the  whole  price 
paid,  and  when  the  property  is  subject  to  redemption  the 
certificate  must  so  state.  And  when  the  judgment  under 
which  the  sale  has  been  made  is  payable  in  a  specified  kind 
of  money  or  currency,  the  certificate  must  specify  the  same 
as  the  money  or  currency  in  which  redemption  may  be 
made.  Besides  giving  to  the  purchaser  the  certificate  of 
sale,  a  duplicate  of  such  certificate  must  be  filed  by  the 
officer  in  the  office  of  the  Recorder  of  the  county.  If  the 
property  sold  is  personal  property,  capable  of  manual  de- 
livery, the  officer  must  actually  deliver  the  property  to  the 
purchaser  upon  payment  of  the  purchase  price. 

Code  of  Civil  Procedure,  Sections  698,  700. 

Section  804.— ASSIGNMENT  OF  CERTIFICATE  OF 
SALE. — The  certificate  of  sale  received  by  the  purchaser 
can  be  sold  and  assigned  by  him,  and  such  assignment 
passes  his  right  and  title.  The  assignment  should  be  re- 
corded, and  a  notice  of  the  assignment  should  be  served  on 
the  officer  who  made  the  sale. 

Section  805.— WHAT  PROPERTY  CAN  BE  RE- 
DEEMED.— There  is  no  redemption  from  sales  of  personal 
property.      The    purchaser    acquires    an    absolute    title    to 


NOTES  AND  MORTGAGES.  459 

personal  property.  When  a  leasehold  interest  in  real  prop- 
erty is  sold,  and  the  lease  has  less  than  two  years  to  run, 
there  is  no  redemption  from  the  sale.  In  all  other  cases 
the  property  is  subject  to  redemption. 

Code  of  Civil  I*rocedure,  Section  700. 

Section  806.— TIME  FOR  REDEMPTION.— The  prop- 
erty sold  may  be  redeemed  from  the  purchaser  at  any  time 
within  twelve  months  after  the  sale.     The  judgment  debtor 
has  the  whole  of  the  last  day  in  which  to  redeem. 
Code  of  Civil  Procedure,  Section  702. 

Section  807.— WHO  MAY  REDEEM.— The  persons 
who  may  redeem  in  this  State  are,  the  judgment  debtor,  or 
his  successor  in  interest,  in  the  whole  or  any  part  of  the 
property;  and  a  creditor  having  a  lien  by  judgment  or 
mortgage  on  the  property  sold,  or  on  some  share  or  part 
thereof,  subsequent  to  the  lien  on  which  the  property  was 
sold. 

Code  of  Civil  Procedure,  Section  701. 

Section  808.— HOW  TO  REDEEM.— The  law  provides, 
that  the  judgment  debtor,  or  other  redemptioner,  who 
wishes  to  redeem,  must  pay  the  purchaser  the  amount  of 
his  purchase,  with  one  per  cent  per  month  thereon  up  to 
the  time  of  redemption,  together  with  the  amount  of  any 
assessment  or  taxes  which  the  purchaser  may  have  paid  on 
the  property  after  purchase,  and  interest  on  such  amount. 
The  purchaser  from  whom  redemption  is  made  may  also 
be  a  creditor  having  a  lien  other  than  the  judgment  under 
which  he  purchased,  and  if  this  lien  was  prior  to  the  lien 
of  the  person  who  seeks  to  redeem  from  him,  he  must  be 
paid  the  amount  of  his  lien,  with  interest,  in  addition  to 
the  amount  of  his  purchase.  When  property  has  been  once 
redeemed,  it  may  be  again  redeemed  by  another  person 
within  sixty  days  after  the  last  redemption,  by  paying  the 
amount   paid  on  the  last  redemption,  with  two  per  cent 


460  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

additional,  and  any  assessment  or  taxes  on  the  property 
which  the  last  redemptioner  may  have  paid,  and  interest; 
and  other  redemptioners  may  in  like  manner  redeem  again 
and  again,  by  making  similar  payments.  Written  notice 
of  redemption  must  be  given  to  the  officer  making  the  sale 
and  a  duplicate  filed  with  the  Recorder  of  the  county.  No 
form  of  written  notice  is  here  given,  for  the  reason  that  it 
is  not  safe  for  a  redemptioner  to  attempt  to  fill  out  a  blank 
notice  and  use  it  himself,  without  the  services  of  a  lawyer. 
Knowing  his  rights,  the  redemptioner  should  seek  the  serv- 
ices of  a  competent  lawyer,  to  prepare  and  serve  the  neces- 
sary notice  and  make  the  proper  tenders  of  money  in  a 
lawful  manner. 

Code  of  Civil  Procedure,  Sections  702,  703. 

Section  809.— THE  SHERIFF'S  DEED.— If  no  redemp- 
tion is  made  within  twelve  months  after  the  sale,  the  pur- 
chaser or  his  assignee  is  entitled  to  a  Sheriff's  deed.  If 
redeemed,  whenever  sixty  days  have  elapsed,  and  no  other 
redemption  has  been  made,  and  the  time  for  redemption 
has  expired,  the  last  redemptioner  or  his  assignee  is  entitled 
to  a  Sheriff's  deed.  But  in  all  cases  the  judgment  debtor 
has  the  entire  period  of  twelve  months  from  the  date  of 
the  sale  to  redeem  the  property.  If  the  debtor  redeems, 
the  effect  of  the  sale  is  terminated,  and  he  is  restored  to  his 
estate. 

Code  of  Civil  Procedure,  Section  703. 

Section  810.— DEFICIENCY  JUDGMENT.— If  after  the 
sale  of  mortgaged  property  the  proceeds  are  insufficient  to 
pay  the  debt,  and  a  balance  still  remains  due,  a  judgment 
is  docketed  by  the  Clerk  of  the  court  for  such  balance 
against  the  defendants  personally  liable  for  the  debt.  Such 
deficiency  judgment  then  becomes  a  lien  against  the  real 
estate  of  the  judgment  debtor. 

Code  of  Civil  Procedure,  Section  726. 


NOTES  AND  MORTGAGES.  461 

Section  811.— POSSESSION  OF  PROPERTY  DUR- 
ING FORECLOSURE  PROCEEDINGS.— Generally  the 

mortgagor  remains  in  possession  of  the  mortgaged  property 
during  foreclosure  proceedings,  and  it  is  only  under  pe- 
culiar circumstances  that  the  court  will  disturb  his  pos- 
session. Where  it  appears  that  the  mortgaged  property  is 
in  danger  of  being  lost,  removed,  or  materially  injured,  or 
where  it  appears  that  the  conditions  of  the  mortgage  have 
not  been  performed,  and  that  the  property  is  insufficient 
to  discharge  the  mortgage  debt,  the  Superior  Court  has 
the  power  to  appoint  a  Receiver,  into  whose  hands  the 
property  is  placed  while  the  suit  is  going  on. 
Code  of  Civil  Procedure,  Section  564. 

Section  812.— POSSESSION  OF  REAL  PROPERTY 
DURING  TIME  FOR  REDEMPTION.— It  has  been 
shown  that  there  is  no  redemption  of  personal  property 
sold  under  foreclosure,  but  that  a  redemption  of  real  prop- 
erty is  allowed,  and  that  the  time  within  which  redemption 
may  be  made  is  twelve  months.  During  this  period  of 
twelve  months  allowed  for  redemption  the  mortgagor  has 
the  right  to  remain  in  possession  of  the  mortgaged  premises, 
and  during  this  time  he  is  entitled  to  use  the  same  and  take 
the  proceeds  thereof. 

Section  813.— RIGHT  TO  RENTS  AND  PROFITS.— 

Where  the  mortgaged  property  is  occupied  by  a  tenant,  the 
purchaser,  from  the  time  of  the  sale  until  redemption,  is 
entitled  to  receive  the  rents  or  the  value  of  the  use  and 
occupation  of  the  property.  Where  a  person  other  than  the 
judgment  debtor  redeems,  he  is  entitled  to  receive  the  rents 
until  another  redemption  takes  place.  But  all  rents  or 
profits  collected  by  the  judgment  creditor  or  by  a  purchaser 
must  be  credited  upon  and  deducted  from  the  redemption 
money  to  be  paid. 

Code  of  Civil  Procedure,  Section  707. 


462  BUSINESS   LAWS   FOB  BUSINESS   MEN. 

Section  814.— WHO  MUST  PAY  FOR  IMPROVE- 
MENTS MADE  DURING  FORECLOSURE  PRO- 
CEEDINGS.— Sometimes  the  mortgagee  gets  possession 
of  the  premises,  either  by  consent  or  by  force,  and  succeeds 
in  retaining  such  possession  during  foreclosure  proceedings. 
Then  the  question  arises.  Who  is  to  pay  for  improvements 
to  the  property  made  by  the  mortgagee  in  possession?  In 
California  the  law  is,  that  where  a  mortgagee  is  in  posses- 
sion, and  makes  improvements  without  the  consent  of  the 
mortgagor,  he  will  not  be  allowed  anything  for  them  further 
than  is  proper  to  keep  the  premises  in  necessary  repair; 
therefore,  if  a  mortgagee  in  possession  should  build  a  new 
house  on  the  land/  or  clear  uncultivated  land  and  put  it 
into  a  state  of  cultivation,  or  make  any  other  improvements 
not  necessary  to  keep  the  premises  in  repair,  he  must  stand 
the  expense  himself,  and  cannot  recover  from  the  mort- 
gagor or  any  redemptioner  the  cost  of  such  improvements. 
The  reason  for  this  rule  is,  that  while  unreasonable  im- 
provements may  be  of  benefit  to  the  estate,  yet  the  mort- 
gagee has  no  right  to  impose  them  upon  the  owner  and 
thus  increase  the  burden  of  redeeming. 

Section  815.— HOW  TO  COLLECT  A  NOTE  WHEN 
MAKER  IS  DEAD.— If  the  maker  of  a  note  dies  before 
it  becomes  due,  the  holder  may  collect  it  from  the  maker's 
estate.  If  the  estate  is  of  a  value  less  than  $10,000,  a  claim 
for  the  amount  due  on  the  note  must  be  presented  to  the 
executor  or  administrator  within  four  months  after  the  first 
publication  of  notice  to  creditors.  If  the  estate  is  of  a 
value  of  $10,000  or  over,  a  claim  for  the  amount  due  on 
the  note  must  be  presented  to  the  executor  or  administrator 
within  ten  months  after  the  first  publication  of  notice  to 
creditors.  If  the  executor  or  administrator  allows  the 
claim,  it  is  then  presented  to  the  Judge  of  the  Probate  Court 
for  his  allowance,  and  when  allowed  it  is  filed  in  the  Clerk's 
office,  and  becomes  an  acknowledged  debt  of  the  estate. 


NOTES  AND  MORTGAGES.  463 

« 

which  the  executor  or  administrator  will  be  bound  to  pay 
in  the  course  of  the  administration  of  the  estate.  When 
a  claim  is  rejected,  either  by  the  executor  or  administra- 
tor, or  by  the  Judge  of  the  court,  the  holder  must  bring 
suit  against  the  executor  or  administrator  within  three 
months  after  the  date  of  its  rejection,  if  it  be  then  due,  or 
within  two  months  after  it  becomes  due,  otherwise  the 
claim  will  be  forever  barred. 

Code  of  Civil  Procedure,  Section  1498. 

Section  816.— EXCUSE  FOR  NOT  PRESENTING 
CLAIM  IN  TIME. — When  the  claimant  was  out  of  the 
State  during  the  publication  of  notice  to  creditors,  and 
makes  affidavit  to  the  fact,  and  that  he  had  no  notice,  this 
will  be  an  excuse  for  not  presenting  his  claim  against  an 
estate  in  time,  and  he  will  be  allowed  to  present  the  claim 
to  the  executor  or  administrator  at  any  time  before  a  decree 
of  distribution  of  the  estate  is  entered. 

Code  of  Civil  Procedure,  Section  1493. 

Section  817.— FORECLOSURE  OF  MORTGAGE 
WHEN  THE  MAKER  IS  DEAD.— A  mortgage  may  be 
foreclosed,  even  though  the  maker  is  dead,  by  a  suit  against 
the  executor  or  administrator  of  his  estate.  But  a  claim 
against  the  estate  must  be  presented  to  the  executor  or 
administrator  if  the  mortgagee  wishes  to  recover  attorney 
fees.  If  he  does  not  present  his  claim  for  the  amount  due, 
he  may  still  foreclose  his  mortgage,  but  he  cannot  recover 
fees  paid  to  his  attorney. 

Section  818.— FORECLOSURE  OF  MORTGAGE  PAY- 
ABLE IN  INSTALLMENTS.— If  the  debt  for  which  the 
mortgage  is  held  is  not  all  due,  as  where  a  note  is  payable 
in  installments,  and  foreclosure  is  had  for  failure  to  pay 
an  installment  due,  so  soon  as  sufficient  of  the  property  has 
been  sold  to  pay  the  amount  due,  with  costs,  the  sale  must 
cease;  and  afterwards,  as  often  as  more  becomes  due,  for 


464  BUSINESS   LAWS  FOR   BUSINESS   MEN. 

principal  or  interest,  the  court  may,  on  motion,  order  more 
lo  be  sold.  But  if  the  property  cannot  be  sold  in  portions, 
without  injury  to  the  parties,  the  whole  may  be  ordered 
to  be  sold  in  the  first  instance,  and  the  entire  debt  and 
costs  paid ;  but  where  this  is  done  there  will  be  a  rebate 
of  interest  on  installments  not  yet  due. 

vJode  of  Civil  Procedure,  Section  728. 

Section  819.— COLLECTION  OF  LOST  OR  DE- 
STROYED NOTE. — The  amount  due  on  a  note  may  be 
collected,  notwithstanding  the  note  may  have  been  lost  or 
destroyed.  If  the  note  is  lost  or  destroyed,  then  the  holder 
must  give  a  bond,  executed  by  himself  and  two  sufficient 
sureties,  to  indemnify  the  party  paying  the  note  again.st 
any  lawful  claim  which  any  other  person  may  make  upon  it. 
Civil  Code,  Section  3137. 

Section  820.— NOTE  MADE  BY  PARTNERS.— A  note 
may  be  made  by  partners  for  the  debts  of  the  firm,  or  in 
the  usual  course  of  business  of  the  firm,  for  goods,  or  ad- 
vancements, or  as  security  for  a  loan  to  the  firm.  One 
partner  may  execute  the  note  in  the  firm  name,  and  all  the 
partners  will  be  bound  by  it,  for  each  partner  has  an  equal 
right,  so  far  as  third  parties  are  concerned,  to  bind  the 
firm  by  acts  and  conduct  in  the  usual  course  of  its  business. 

Section  821.— LIABILITY  OF  PARTNERS  ON  PART- 
NERSHIP NOTE.— Every  general  partner  is  liable  to 
third  persons  for  all  the  obligations  of  the  partnership, 
jointly  with  his  copartners.  Therefore,  a  promissory  note, 
executed  for  the  firm,  makes  each  partner  liable  to  pay  the 
note.  The  partnership  property  may  be  taken  for  the  pay- 
ment of  the  debt,  and  the  property  of  each  partner  may 
also  be  taken,  if  the  property  of  the  firm  is  not  sufficient. 

Section    821a.— ASSIGNMENT    OF    MORTGAGE.— A 

mortgage  may  be  assigned,  and  the  assignee  will  then  have 


NOTES  AND  MORTGAGES.  465 

the  same  rights  as  the  original  mortgagee.  The  assign- 
ment must  be  in  writing,  and  must  be  signed  and  acknowl- 
edged by  the  person  making  the  assignment.  The  follow- 
ing is  a  good  form  of  assignment  of  mortgage,  which  must 
be  acknowledged  in  the  same  manner  as  a  mortgage  is 
acknowledged : — • 


ASSIGNMENT  OF  MORTGAGE. 

Know  All  Men  by  These  Presents  : — That , 

of  the  County  of ,  State  of  California,  the 

party  of  the  first  part,  for  and  in  consideration  of  the  sum 

ol  Dollars,  Gold  Coin  of  the  United  States  of 

America,  to  him  in  hand  paid  by 

of  the  County  of ,  State  of  California, 

the  party  of  the  second  part,  the  receipt  whereof  is  hereby 
acknowledged,  does  by  these  presents,  grant,  bargain,  sell, 
assign,  transfer,  and  set  over,  unto  the  said  party  of  the  sec- 
ond part,  a  certain  indenture  of  mortgage  bearing  date  the 

day  of ,  190.  .,  made  and  executed  by 

to  the  said  party  of  the  first  part, 

and  recorded  in  the  office  of  the  County  Recorder  of  the 

County  of ,  State  of  California,  in  book 

of  mortgages,  page  .  . . . ,  on  the day  of , 

190. . ,  at minutes  past o'clock  ....  M. 

Together  with  the  promissory  note  therein  described,  and 
the  money  due  and  to  grow  due  thereon,  with  the  interest. 

And  the  said  party  of  the  first  part  does  hereby  make, 
constitute,  and  appoint  the  said  party  of  the  second  part 
his  true  and  lawful  attorney,  irrevocable,  in  his  name  or 
otherwise,  but  at  the  proper  costs  and  charges  of  the  said 
party  of  the  second  part,  to  have,  use,  and  take  all  lawful 
ways  and  means  for  the  recovery  of  the  said  money  and 
interest ;  and  in  case  of  payment  to  discharge  the  same  as 
fully  as  the  said  party  of  the  first  part  might  or  could  do  if 
these  presents  were  not  made. 

In  witness  whereof  the  said  party  of  the  first  part  has 

hereunto  set  his  hand  and  seal  this day  of , 

190.. 

, (Seal.) 


PART  IV 

ATTACHMENTS  AND  EXECUTIONS 

Attachments 

Section  822.— ATTACHMENT  OF  DEBTOR'S  PROP- 
ERTY.— A  creditor,  in  a  suit  to  collect  a  bill,  account,  or 
promissory  note  not  secured  by  mortgage,  can  attach  the 
property  of  his  debtor.  The  court  in  which  the  suit  is 
brought  will  issue  the  writ  of  attachment,  to  be  placed  in 
the  hands  of  an  officer  for  service,  at  the  time  the  summons 
is  issued  in  the  suit,  or  at  any  time  afterward  before  judg- 
ment is  given.  Always,  the  plaintiff  in  the  suit  must  give 
bond,  usually  in  the  sum  of  two  hundred  dollars,  when  the 
suit  is  in  the  Superior  Court,  to  the  effect  that  if  the  de- 
fendant recover  judgment  the  plaintifif  will  pay  all  costs 
that  may  be  awarded  to  the  defendant  and  all  damages 
which  he  may  sustain  by  reason  of  the  attachment,  not 
exceeding  the  sum  specified  in  the  bond.  The  bond  must 
be  signed  by  two  or  more  sureties.  Upon  the  filing  of  the 
bond  the  Clerk  of  the  Superior  Court,  if  the  suit  is  in  that 
court,  or  the  Justice  of  the  Peace,  if  the  suit  is  before  a 
Justice,  will  issue  a  writ  of  attachment.  The  bond  in  a 
Justice  Court  is  usually  in  the  sum  of  fifty  dollars.  When 
issued,  the  writ  of  attachment  is  placed  in  the  hands  of  the 
Sheriff  or  a  Constable  for  service. 

Code  of  Civil   Procedure,  Sections  538,  539,  866. 
867. 

Section  823.  — WHAT  PROPERTY  CAN  BE  AT- 
TACHED.— Real  estate  belonging  to  the  debtor,  whether 
standing  upon  the  records  of  the  county  in  his  name  or 
in  the  name  of  another;  personal  property  of  all  kinds; 
corporation  stocks  or  shares ;  money  owing  to  the  debtor 
(466) 


ATTACHMENTS  AND  EXECUTIONS.  467 

by  any  person, — all  these  may  be  attached  as  security  for 
the  payment  of  the  judgment  which  the  creditor  expects 
to  obtain  when  he  sues  the  debtor  to  collect  the  amount 
due  from  him. 

Section  824.— WHAT  PROPERTY  IS  EXEMPT 
FROM  ATTACHMENT  OR  EXECUTION.— The  law 
of  California  singles  out  certain  property  of  the  debtor,  and 
says  that  it  shall  not  be  taken  for  a  debt.  This  it  does  to 
protect  the  unfortunate  and  the  improvident,  and  to  secure 
to  the  family  of  the  debtor  provision  at  least  for  temporary 
wants.  Therefore,  the  law  states  that  certain  property  of 
the  debtor  shall  be  exempt,  no  matter  how  pressing  his 
debts  or  how  eager  his  creditors  may  be.  An  attachment 
cannot  hold,  nor  can  a  sale  on  execution  be  had,  of  any  of 
the  following  property  if  the  owner  objects:  (1) — Chairs, 
tables,  desks,  and  books,  to  the  value  of  $200,  belonging 
to  the  judgment  debtor.  (?) — >Jprpc;t;a.ry  household,  table, 
and  kitchen  furniture,  belonging  to  the  judgment  debtor, 
including  one  sewing-machine,  stove,  stovepipes,  and  fur- 
niture, wearing  apparel,  beds,  bedding,  and  bedsteads, 
hanging  pictures,  oil  paintings  and  drawings,  drawn  or 
painted  by  any  member  of  the  family,  and  family  portraits 
and  their  necessary  frames,  provisions  and  fuel  actually 
provided  for  individual  or  family  use  sufficient  for  three 
months,  and  three  cows  and  their  sucking  calves,  four  hogs 
with  their  sucking  pigs,  and  food  for  such  cows  and  hogs 
for  one  month ;  also  one  piano,  one  shotgun,  and.  one  rifle. 
(3) — The_f arming  utensils  or  implements  of  husbandry  of 
the  judgment  debtor,  not  exceeding  in  value  the  sum  of  one 
thousand  dollars ;  also,  two  oxen,  or  two  horses,  or  two 
mules,  and  their  harness,  one  cart  or  buggy  and  two  wag- 
ons, and  food  for  such  oxen,  horses,  or  mules  for  one  month ; 
also,  all  seed,  grain,  or  vegetables  actually  provided,  re- 
served, or  on  hand  for  the  purpose  of  planting  or  sowing 
at  any  time  within  the  ensuing  six  months  not  exceeding 
in  value  the  sum  of  two  hundred  dollars;  75  bee-hives: 


468  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

and  one  horse  and  vehicle  belonging  to  any  person  who 
is  maimed  and  crippled,  if  same  is  necessary  in  his  busi- 
ness. (4) — The  too]lsor_  implements  of  a  mechanic  or 
artisan,  necessary  to  carry  on  his  trade;  the  notarial  seal, 
records,  and  office  furniture  of  a  Notary  Public ;  the  instru- 
ments and  chest  of  a  surgeon,  physician,  surveyor,  or 
dentist,  necessary  to  the  exercise  of  his  profession,  with 
his  professional  library,  and  necessary  office  furniture ;  the 
professional  libraries  of  attorneys,  judges,  ministers  of  the 
gospel,  editors,  school-teachers,  and  music  teachers,  and 
their  necessary  office  furniture,  including  one  safe  and  one 
typewriter ;  the  musical  instruments  of  music  teachers 
actually  used  by  them  in  giving  instructions ;  all  the  in- 
dexes, abstracts,  books,  papers,  maps,  and  office  furniture 
of  a  searcher  of  records,  necessary  to  be  used  in  his  pro- 
fession ;  the  typewriters,  or  other  mechanical  contrivances 
employed  for  writing  in  type,  actually  used  by  the  owner 
thereof  for  making  his  living;  also,  one  bicycle,  when  the 
same  is  used  by  its  owner  for  the  purpose  of  carrying  on 
his  regular  business,  or  when  the  same  is  used  for  the  pur- 
pose of  transporting  the  owner  to  and  from  his  place  of 
business.  (5) — The  cabiiL  or  dwelling  of  a  miner,  not  ex- 
ceeding in  value  the  sum  of  five  hundred  dollars ;  also  his 
sluices,  pipes,  hose,  windlass,  derrick,  cars,  pumps,  tools, 
implements  and  appliances,  necessary  for  carrying  on  any 
mining  operations,  not  exceeding  in  value  the  aggregate  sum 
of  five  hundred  dollars ;  and  two  horses,  mules,  or  oxen, 
with  their  harness,  and  food  for  such  horses,  mules,  or  oxen 
for  one  month,  when  necessary  to  be  used  on  any  whim, 
windlass,  derrick,  car,  pump,  or  hoisting  gear ;  and  also  his 
mining  claim,  actually  worked  by  him,  not  exceeding  in 
value  the  sum  of  one  thousand  dollars.  (6) — Two  horses, 
two  oxen,  or  two  mules,  and  their  harness,  and  one  cart 
or  wagon,  one  dray  or  truck,  one  coupe,  one  hack  or  car- 
riage, for  one  or  two  horses,  by  the  use  of  which  a  cartman, 
drayman,  truckman,  huckster,  peddler,  hackman,  teamster, 
or  other  laborer  habitually  earns  his  living;  and  one  horse. 


ATTACHMENTS  AND  EXECUTIONS.  469 

with  vehicle  and  harness  or  other  equipments,  used  by  a 
physician,  surgeon,  constable,  or  minister  of  the  gospel,  in 
the  legitimate  practice  of  his  profession  or  business ;  with 
food  for  such  oxen,  horses,  or  mules,  for  one  month.  (7) 
— Qne.  fisjiingjbqat  and  net,  not  exceeding  the  total  value 
of  five  hundred  dollars,  the  property  of  any  fisherman,  by 
the  lawful  use  of  which  he  earns  his  livelihood.  (8) — EquJ- 
try^r^^t  pvrppH in g  in  value  scvcnty-five  dollars.  (9)— ^The 
wages,  and  earnings  of  all  seamen,  sea-going  fishermen,  and 
sealers,  not  exceeding  three  hundred  dollars,  regardless  of 
where  or  when  earned,  and  in  addition  to  all  other  exemp- 
tions otherwise  provided  by  any  law.  (lO)^The^  earnings 
of  the  judgment  debtor  for  his  personal  services  rendered 
at  any  time  within  thirty  days  next  preceding  the  levy  of 
execution  or  attachment,  when  it  appears  by  the  debtor's 
affidavit  or  otherwise  that  such  earnings  are  necessary  for 
the  use  of  his  family,  residing  in  this  State,  supported  in 
whole  or  in  part  by  his  labor ;  but  where  debts  are  incurred 
by  any  such  person,  or  his  wife  or  family,  for  the  common 
necessaries  of  life,  or  have  been  incurred  at  a  time  when 
the  debtor  had  no  family  residing  in  this  State  supported 

'^in  whole  or  in  part  by  his  labor,  the  one-half  of  such  earn- 
ings above  mentioned  is  nevertheless  subject  to  attachment 
or  execution,  to  satisfy  debts  so  incurred.  (IjO— The 
shares  held  by  a  member  of  an  incorporated  homestead 
association,  not  exceeding  in  value  one  thousand  dollars, 
if  the  person  holding  the  shares  is  not  the  owner  of  a  home- 
stead under  the  laws  of  this  State.  (12) — AHthe^nautical 
'"'r^^'limf"^^  and  wearing  apparel  of  any  master,  officer,  or 
seaman  of  any  steamer  or  other  vessel.  (13) — AlL-fire 
en^ill£s,  hooks,  and  ladders,  with  the  carts,  trucks,  and  car- 

-  riages,  hose,  buckets,  implements,  and  apparatus  there- 
unto appertaining,  and  all  furniture  and  uniforms  of  any 
fire  company  or  department  organized  under  any  law  of 
this  State.  (14) — All  arms,  uniforms,  and  accoutrements 
required  by  law  to  be  kept  by  any  person,  and  also  one 
gun,  to  be  selected  by  the  debtor.     (15) — All  court-houses, 


470  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

jails,  public  offices  and  buildings,  lots,  grounds,  and  per- 
sonal property ;  the  fixtures,  furniture,  books,  papers,  and 
appurtenances  belonging  and  pertaining  to  jails  and  pub- 
lic offices  of  any  county  of  this  State;  and  all  cemeteries, 
public  squares,  parks,  and  places,  public  buildings,  town 
halls,  markets,  buildings  for  the  use  of  fire  departments 
and  military  organizations,  and  the  lots  and  grounds  thereto 
belonging,  owned  or  held  by  any  town  or  incorporated  city, 
or  dedicated  by  such  town  or  city  to  health,  ornament,  or 
public  use,  or  for  the  use  of  any  fire  or  military  company 
organized  under  the  laws  of  this  State.  (16) — ^U  mate- 
j^aJLjiot  exceeding  one  thousand  dollars  in  value,  purchased 
in  good  faith  for  use  in  the  construction,  alteration,  or 
repair  of  any  building,  mining  claim,  or  other  improvements, 
as  long  as  in  good  faith  the  same  is  about  to  be  applied  to 
the  construction,  alteration,  or  repair  of  such  building, 
mining  claim,  or  other  improvement.  (17) — All  machinery, 
tools,  and  implements  necessary  in  and  for  boring,  sinking, 
putting  down,  and  constructing  surface  or  artesian  wells, 
also,  the  engines  necessary  for  operating  such  machinery, 
implements,  tools,  etc. ;  also,  all  trucks  necessary  for  the 
transportation  of  such  machinery,  tools,  implements,  en- 
gines, etc. ;  provided,  that  the  value  of  all  the  articles  ex- 
empted under  this  subdivision  shall  not  exceed  one  thou- 
sand dollars.  (18) — All  raojieys,.  benefits,  privileges,  or 
immunities  accruing  or  in  any  manner  growing  out  of  any 
life  insurance,  if  the  annual  premiums  paid  do  not  exceed 
five  hundred  dollars,  and  if  they  exceed  that  sum,  a  like 
exemption  exists,  bearing  the  same  proportion  to  the 
moneys,  benefits,  privileges,  and  immunities  so  accruing 
or  growing  out  of  such  insurance  that  five  hundred  dollars 
bears  to  the  whole  annual  premiums  paid.  (19) — Shares 
of  stock  in  any  building  and  loan  association  to  the  value 
oTone  thousand  dollars.  No  article,  however,  or  species 
of  property  mentioned  above,  is  exempt  from  execution 
issued  upon  a  judgment  recovered  for  its  price,  or  upon 
a  judgment   of   foreclosure   of   a   mortgage   or   other   lien 


ATTACHMENTS  AND  EXECUTIONS.  471 

thereon.  (20) — AJInit£d_Sta_tes_homestead  cannot  be  at- 
tached or  sold  under  execution  for  any  debt  contracted 
prior  to  proving  up  and  obtaining  title  to  the  land.  (21) — 
^AJJ  pinn py  ff^ff^^vpH.  by  any  person,  a  resident  of  the  State, 
as  a  pension  from  the  United  States  government,  whether 
the  same  shall  be  in  the  actual  possession  of  such  pensioner, 
or  deposited,  loaned  or  invested  by  him. 

Act  of  the  Legislature,  in  effect  May  22,  1907. 

Section  825.— MORTGAGED  PROPERTY  MAY  BE 
ATTACHED. — Property,  real  or  personal,  which  is  mort- 
gaged to  another  person,  may  be  attached  in  a  suit  by  a 
creditor,  but  the  lien  of  the  attachment  is  subject  to  the 
mortgage. 

Section  826.— CREDITOR  LIABLE  FOR  UNLAW- 
FUL ATTACHMENT.— A  creditor  who  makes  an  un- 
lawful attachment,  or  causes  it  to  be  made,  will  be  liable 
in  damages  for  all  injury  done  to  the  person  whose  property 
is  attached.  If  the  holder  of  an  obligation  sues  upon  it, 
and  causes  an  attachment  to  be  issued  and  placed  upon 
property  of  the  debtor,  as  upon  household  furniture,  or 
farming  utensils,  or  horses,  or  cows,  exempt  by  law  from 
execution,  he  will  be  liable  for  all  damages  sustained  by 
the  unlawful  seizure.  His  sureties  on  the  attachment  bond 
are  liable  to  the  extent  of  their  bonds  only,  but  he  is  liable 
to  the  full  extent  of  the  injury.  The  debtor  may  have  the 
attachment  released,  upon  the  ground  that  the  property 
attached  is  exempt,  and  bring  a  suit  for  damages  against 
the   creditor  and   his   bondsmen. 

Section  827.— CREDITOR  ATTACHING  PERSONAL 
PROPERTY  MUST  PAY  MORTGAGE.— It  has  already 
been  shown  that  mortgaged  property  may  be  attached  by 
a  creditor  of  the  owner,  subject  to  the  mortgage.  Per- 
sonal property  mortgaged  may  be  taken  under  attachment 
or  execution  issued  at  the  suit  of  a  creditor  of  a  mortgagor: 


472  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

but  before  the  property  can  be  taken,  the  officer  levying 
the  attachment  or  execution  must  pay  or  tender  to  the 
mortgagee  the  amount  of  the  mortgage  debt  and  interest, 
or  must  deposit  the  money  with  the  County  Clerk  or  Treas- 
urer, payable  to  the  order  of  the  mortgagee. 
Civil  Code,  Section  2969. 

Section  828.— GARNISHMENT.— There  are  certain  ef- 
fects of  a  debtor  which  cannot  be  seized  and  taken  into 
the  custody  of  the  officer,  but  which  may  still  be  rendered 
liable  tcJ  the  payment  of  the  debt,  such  as  money  owing 
to  the  debtor  by  a  third  person,  or  property  in  the  hands 
of  a  third  person  belonging  to  the  debtor.  In  a  suit  by 
the  creditor  against  the  debtor,  the  officer  serves  a  notice 
upon  the  person  owing  the  debtor,  or  having  property  of 
the  debtor  in  his  hands,  that  such  property  is  attached, 
and  this  is  called  garnishment.  The  person  upon  whom 
the  notice  is  served  is  called  the  garnishee.  Thereafter, 
he  cannot  pay  his  debt  to  the  defendant,  nor  deliver  the 
property  to  him,  but  must  hold  it  to  await  the  result  of 
the  suit.  In  this  State,  when  required  by  the  officer  the 
garnishee  must  make  a  statement  of  the  amount  owing 
by  him  to  the  defendant,  or  showing  the  character  and 
description  of  the  property  in  his  hands  belonging  to  the 
defendant. 


Section  829.— FOR  WHAT  PROPERTY  GARNISHEE 
LIABLE. — The  garnishee  will  be  held  liable  for  ail  per- 
sonal property  in  his  hands  belonging  to  the  defendant 
which  is  capable  of  being  seized  and  sold  upon  execution. 
The  garnishee  will  be  liable  for  money  in  his  hands 
belonging  to  the  defendant,  and  a  garnishment  may  be 
levied  upon  a  bank  or  corporation,  as  well  as  upon  an  indi- 
vidual. The  property  must  be  in  the  actual  possession  of 
the  garnishee,  or  within  his  control,  so  that  he  may  be  able 
to  turn  it  over  to  the  officer  on  execution. 


ATTACHMENTS  AND  EXECUTIONS,  473 

Section  830.— MONEY  DUE  AS  SALARY  TO  PUBLIC 
OFFICER. — The  salary  of  a  public  officer  can  be  attached 
or  garnished.  When  a  judgment  is  obtained  against  a  pub- 
lic officer,  a  transcript  of  it  may  be  filed  with  the  State  Con- 
troller or  County  or  City  Auditor,  and  so  much  of  the 
officer's  salary  as  is  not  exempt  from  execution  shall  be 
then  paid  over  to  the  judgment  debtor.  (Statutes  of 
1903,  page  362.)  A  decision  has  been  made  by  the 
Supreme  Court  in  a  test  case  under  the  statute  of 
1903.  A  suit  was  brought  in  San  Francisco  to  compel 
the  Auditor  to  allow  the  salary  of  a  public  officer,  but 
he  refused  on  the  ground  that  a  part  of  the  money  had 
been  attached  under  the  new  law.  The  Supreme  Court 
decided  that  the  law  is  constitutional,  and  that  it  will  stand 
good  as  to  all  public  officers  and  employees  created  or 
provided  for  by  the  Legislature.  Therefore,  when  the 
Auditor  pays  the  money  due,  from  the  State,  or  city,  or 
county,  into  court,  so  much  as  is  not  exempt  from  execu- 
tion must  be  paid  to  the  judgment  creditor.  (Decided  by 
the  Supreme  Court  of  California,  in  the  case  of  Ruperich 
vs.  Baehr,  which  decision  is  printed  in  Volume  27  of  Cali- 
fornia Decisions,  No.  1465,  page  359.) 

Section  831.— MONEY  IN  THE  HANDS  OF  THE 
LAW. — Money  in  the  hands  of  the  law,  as  money  in  the 
hands  of  a  sheriff,  or  constable,  or  money  deposited  with 
a  clerk  of  court  to  wait  the  determination  of  a  suit,  or 
money  in  the  hands  of  a  Receiver  appointed  by  the  court, 
cannot  be  taken  by  garnishment  or  attachment;  for  all 
such  property  is  in  the  custody  of  the  law,  and  until  the 
law  has  done  with  it,  no  interference  from  any  other  source 
will  be  tolerated  or  allowed. 

Section  832.— ATTACHMENT  OF  PARTNERSHIP 
PROPERTY. — Partnership  property  may  always  be  at- 
tached for  partnership  d^bts.  But  a  more  serious  question 
arises,  where  one  partner  owes  debts  and  is  sued  by  his 


474  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

creditor,  outside  of  the  partnership  business.  The  deci- 
sions of  the  courts  in  different  States  have  not  been  uni- 
form, but  in  California  the  law  appears  to  be  settled,  that 
a  creditor  of  one  partner  may  have  an  attachment  levied 
upon  the  partnership  property.  The  sheriff  must  take  the 
whole  property  into  his  possession,  but  he  cannot  sell  on 
execution  the  interests  of  both  partners ;  he  can  only  sell 
under  the  execution  the  interest  of  the  partner  against 
whom  the  judgment  was  obtained. 

Section  833.— DISSOLUTION  OF  ATTACHMENT.— 

If  an  attachment  has  been  improperly  or  irregularly  issued, 
by  the  court  in  which  the  suit  was  brought,  it  will  be  dis- 
charged on  motion  of  the  defendant.  If  an  attachment  is 
issued  in  a  case  where  the  law  does  not  provide  for  an 
attachment,  or  if  the  plaintiff's  complaint  does  not  state  a 
cause  of  action,  or  if  other  necessary  papers  essential  to 
obtain  a  Writ  of  Attachment  are  fatally  defective,  the  at- 
tachment will  be  held  to  be  improperly  or  irregularly  issued 
and  the  defendant  will  have  a  right  to  ask  for  the  discharge 
of  the  attachment. 

Section  834.— BOND  FOR  RELEASE  OF  ATTACHED 
PROPERTY. — The  defendant  in  a  suit,  whose  property 
is  attached,  may  have  the  attachment  released  by  giving 
a  bond,  in  a  sum  to  be  fixed  by  the  court,  with  at  least 
two  sureties,  as  security  that  the  property  released  will  be 
re-delivered  to  the  proper  officer  if  the  plaintiff  recover  a 
judgment  in  the  action ;  or  that,  if  the  property  is  not 
turned  over  to  the  officer,  that  the  sureties  will  pay  to  the 
plaintiff  the  full  value  of  the  property  released. 
Code  of  Civil  Procedure,  Section  555. 

Section  834a.— LIEN  OF  ATTACHMENT.— The  attach- 
ment will  be  a  lien  upon  all  real  property  attached  for  a 
period  of  three  years  after  date  of  levy,  unless  sooner  re- 
leased or  discharged  by  dismissal  of  the  suit  or  by  entry  of 


ATTACHMENTS  AND  EXECUTIONS.  475 

judgment.  The  time  may  be  extended,  by  the  court,  upon 
motion  made  not  less  than  five  nor  more  than  sixty  days 
before  the  expiration  of  the  three  years. 

Act  of  the  Legislature,  approved  March  25,  1909. 

Judgments  and  Executions 

Section  835.— JUDGMENTS.— Whether  any  property  is 
attached  or  not,  a  judgment  may  be  obtained  for  the  amount 
due,  and  costs  of  suit,  and  upon  the  judgment  an  execution 
is  issued  from  the  court  in  which  suit  is  brought,  directed 
to  the  Sheriff,  and  commanding  that  officer  to  sell  enough 
of  the  debtor's  property  to  pay  the  debt.  All  property  not 
exempt  from  execution  may  be  sold  by  the  Sheriff  and  ap- 
plied to  the  payment  of  the  judgment.  All  sales  of  prop- 
erty under  execution  are  made  at  public  auction  to  the 
highest  bidder. 

Section  836.— JUDGMENT  A  LIEN  ON  REAL  PROP- 
ERTY.— When  a  judgment  is  rendered  in  a  suit  in  the 
Superior  Court,  the  Clerk  of  the  Court  enters  the  judgment 
in  his  official  records,  and  makes  up  what  is  called  a  Judg- 
ment Roll,  attaching  together  and  filing  the  pleadings  and 
certain  other  papers,  for  that  purpose.  Immediately  after 
filing  the  Judgment  Roll,  the  Clerk  of  the  Court  makes  the 
proper  entry  of  the  judgment  in  the  docket  kept  by  him; 
and  from  the  time  the  judgment  is  docketed  it  becomes  a 
lien  upon  all  the  real  property  of  the  judgment  debtor  not 
exempt  from  execution  in  the  county,  owned  by  him  at  the 
time  or  which  he  may  afterward  acquire,  until  the  lien 
ceases. 

Code  of  Civil  Procedure,  Sections  670,  671. 

Section  837.— HOW  LONG  JUDGMENT  LIEN  CON- 
TINUES.— The  lien  of  a  judgment  docketed  in  the  Superior 
Court  continues  for  five  years,  on  real  property  of  the 
judgment  debtor  in  the  county. 


476  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

Section  838.— JUDGMENT  LIEN  ON  PROPERTY  IN 
ANOTHER  COUNTY.— A  transcript  of  the  original 
docket  of  the  judgment,  certified  by  the  Clerk,  may  be  filed 
with  the  Recorder  of  any  other  county,  and  from  the  time 
of  the  filing  the  judgment  becomes  a  lien  upon  all  the  real 
property  of  the  judgment  debtor  not  exempt  from  execu- 
tion in  such  other  county,  and  this  lien,  unless  the  judg- 
ment be  previously  satisfied,  continues  for  two  years. 
Code  of  Civil  Procedure,  Section  674. 

Section  839.— HOW  JUSTICE  COURT  JUDGMENT  IS 
MADE  LIEN   ON   REAL  PROPERTY.— Reference  has 

been  made  in  the  preceding  Sections  to  the  lien  of  judg- 
ments obtained  in  the  Superior  Court.  But  a  lien  upon  the 
real  property  of  the  debtor  may  also  be  secured  on  a  Justice 
Court  judgment,  by  following  certain  requirements  of  the 
law  of  California.  A  person  obtaining  a  judgment  in  the 
Justice  Court,  if  he  wishes  to  make  it  a  lien  upon  the  real 
property  of  his  debtor,  must  ask  the  Justice  to  give  him  an 
abstract  of  the  judgment,  which  it  is  the  duty  of  the  Justice 
to  furnish  on  demand.  This  abstract  of  the  judgment  must 
be  filed  in  the  office  of  the  Recorder  of  the  county  in  which 
the  land  of  the  debtor  is  situated,  and  when  so  filed,  and 
from  the  time  of  filing,  the  judgment  becomes  a  lien  on 
such  property.  This  lien  continues  for  two  years,  unless 
the  judgment  be  previously  satisfied.  A  judgment  ren- 
dered in  a  Justice's  Court  creates  no  lien  upon  any  lands 
of  the  defendant,  unless  the  abstract  above  mentioned  is 
filed  in  the  office  of  the  Recorder  of  the  county  in  which 
the  lands  are  situated. 

Code  of  Civil  Procedure,  Sections  897,  900. 

Section  840.— TIME  WITHIN  WHICH  EXECUTION 
MAY  ISSUE.— The  party  in  whose  favor  judgment  is  given 
may,  at  any  time  within  five  years  after  the  judgment  is 
entered,  have  a  writ  of  execution  issued  for  its  enforcement. 


ATTACHMENTS  AND  EXECUTIONS.  477 

Section  841.— EXEMPTION  MUST  BE  CLAIMED  BY 

DEBTOR. — While  the  law  exempts  certain  property  of  a 
judgment  debtor  from  execution  and  forced  sale,  such  ex- 
emption is  a  personal  privilege,  which  may  be  waived  by  the 
debtor ;  and  a  failure  to  claim  the  property  as  exempt,  when 
levied  on  to  satisfy  a  judgment  against  him,  within  a  rea- 
sonable time  thereafter,  is  a  waiver  of  the  exemption  right : 
and  the  officer  selling  exempt  property  without  such  claim 
of  exemption  is  not  liable  for  its  value. 


PART  V 

LAST  WILLS  AND  TESTAMENTS 

Section  842.— MAKING  A  WILL.— The  law  of  Califor- 
nia designs  to  encourage  the  making  of  wills,  and  whenever 
the  last  will  and  testament  of  a  deceased  person — who  in 
his  lifetime  thus  endeavored  to  direct  the  disposition  of 
his  property  when  he  should  have  done  with  the  business 
of  this  world — whenever  such  an  instrument  has  come  be- 
fore the  Supreme  Court  of  this  State,  and  has  become  the 
subject  of  attack  by  dissatisfied  relatives,  the  law  relative 
to  the  making  of  wills  has  always  been  liberally  construed, 
with  a  sincere  desire  to  carry  out  the  intentions  of  the 
testator.  The  courts  of  late  years  have  come  to  look  with 
more  or  less  suspicion  upon  the  many  attempts  to  break 
wills  made  in  this  State.  Disgraceful  scandals  have  been 
the  aftermath  of  so  many  will  contests,  and  bribery  and 
perjury  of  witnesses  such  frequent  circumstances,  that  the 
Supreme  Court  alone  has  been  able  to  stem  the  tide  of 
corruption  which  has  followed  many  of  California's  rich 
men  to  the  grave.  Now,  the  frequent  decisions  of  the 
Supreme  Court  in  favor  of  the  validity  of  wills,  and  the 
fearless  rulings  of  some  Judges  of  the  Superior  Court, 
setting  aside  verdicts  of  juries  when  evidently  induced  by 
passion  and  prejudice,  are  having  a  good  effect.  The  num- 
ber of  will  contests  may  not  be  decreased,  as  long  as 
credulous  clients  have  money  to  pay  eager  lawyers ;  but 
the  people  of  California  may  at  all  events  feel  greater 
security  in  the  irrevocable  character  of  last  wills  and  testa- 
ments. And  whether  a  person  be  rich  or  poor,  whether 
the  estate  disposed  of  by  will  be  large  or  small,  it  is  the 
intention  of  the  law  of  California  that  the  solemn  act  thus 
expressed  shall  be  protected  and  enforced. 

(478) 


LAST  WILLS  AND  TESTAMENTS.  479 

Section   843.— WHO    MAY    MAKE   A   WILL.— Every 

person  in  California  over  the  age  of  18  years,  and  of  sound 
mind,  may  make  a  last  will,  and  thus  dispose  of  all  his 
estate,  real  and  personal. 

Section  844.— WILL  OF  MARRIED  WOMAN.— A 
married  woman  may  dispose  of  all  her  separate  property 
by  will,  without  the  consent  of  her  husband,  and  may  alter 
or  revoke  the  will  in  like  manner  as  if  she  were  single. 
The  will  of  a  married  woman  must  be  executed  and  proved 
in  the  same  manner  as  other  wills. 
Civil  Code,  Section  1273. 

Section  845.— WHAT  MAY  BE  DISPOSED  OF  BY 
WILL. — Every  estate  and  interest  in  real  or  personal 
property,  to  which  heirs,  husband,  widow,  or  next  of  kin, 
if  there  were  no  will,  might  succeed  to,  may  be  disposed 
of  by  last  will;  provided,  the  husband  can  only  dispose  of 
one-half  of  the  community  property  by  his  will,  the  other 
half  belonging  to  his  wife  at  his  death  and  not  being  sub- 
ject to  his  will;  and  provided,  also,  that  the  wife  can  only 
dispose  of  her  separate  property  by  her  will,  or  such  of 
the  community  property  as  may  have  been  set  aside  to 
her  by  the  judgment  of  a  court  for  her  support  and 
maintenance. 

Civil  Code,  Sections  1401,  1402. 

Section    846.— WHO    MAY    TAKE    BY    WILL.— Any 

person  may  take  property  by  will,  except  the  artificial  per- 
sons known  as  corporations.  A  testamentary  disposition 
of  property  cannot  in  this  State  be  made  to  any  corpora- 
tion, except  such  as  are  formed  for  scientific,  literary,  or 
solely  educational  or  hospital  purposes;  and  except  that 
property  may  lawfully  be  willed  to  charitable  or  benevolent 
societies  or  corporations  for  use  by  them  in  the  furtherance 
of  their  designs.  But  no  estate,  real  or  personal,  can  be 
lawfully   left  to  any   charitable  or  benevolent   society   or 


480  BUSINESS   LAWS   FOR    BUSINESS   MEN. 

corporation,  or  to  any  person  or  persons  in  trust  for  chai  • 
itable  uses,  unless  the  will  is  executed  at  least  thirty  days 
before  the  death  of  the  testator ;  and  the  law  provides  that 
bequests  for  charitable  uses  must  not  collectively  exceed 
one-third  of  the  estate  of  the  testator  leaving  legal  heirs. 
Civil  Code,  Sections  1275,  1313. 

Section  847.— KINDS  OF  WILLS.— There  are  three 
kinds  of  wills  recognized  by  the  law  of  California — a  nun- 
cupative will ;  an  olographic  will ;  and  a  will  signed  by  the 
testator  and  by  attesting  witnesses. 

Section  848.— NUNCUPATIVE  WILLS.— The  kind  of 
will  called  "nuncupative"  is  only  made  under  peculiar  and 
extraordinary  circumstances.  A  person  in  actual  military 
service  in  the  field,  or  doing  duty  on  a  ship  at  sea,  and  in 
actual  contemplation,  fear,  or  peril  of  death,  or  in  expecta- 
tion of  immediate  death  from  an  injury  received  the  same 
day,  may  make  a  nuncupative  will.  A  nuncupative  will  is 
not  required  to  be  in  writing,  nor  to  be  declared  or  attested 
with  any  formalities.  To  make  a  nuncupative  will  valid, 
and  to  entitle  it  to  be  admitted  to  probate,  it  must  further 
appear  that  the  estate  bequeathed  does  not  exceed  in  value 
the  sum  of  one  thousand  dollars ;  and  two  witnesses  who 
were  present  at  the  making  of  the  will  must  prove  it,  and 
one  of  the  witnesses  must  have  been  asked  by  the  testator 
at  the  time  to  be  a  witness  that  such  was  his  will. 

Section  849.— OLOGRAPHIC  WILLS.— An  olographic 
will  is  one  that  is  entirely  written,  dated,  and  signed  by 
the  hand  of  the  testator  himself.  It  is  subject  to  no  other 
form,  and  may  be  made  in  or  out  of  this  State,  and  need 
not  be  witnessed.  The  law  must  be  strictly  followed  in 
making  such  a  will.  It  may  be  written  on  any  kind  of 
paper,  and  it  is  not  required  to  be  in  any  particular  form; 
but  it  must  be  entirely  in  the  testator's  handwriting.  If 
a  person,  intending  to  make  an  olographic  will,  dictate?  to 


LAST  WILLS  AND  TESTAMENTS.  481 

some  one  who  writes  the  body  of  it  for  him  and  then  signs 
it  himself,  it  is  not  a  valid  will,  for  the  law  expressly  de- 
clares that  he  must  write  it  all  himself.  So,  if  a  person 
uses  a  blank  form,  and  fills  out  the  blanks  in  his  own  hand- 
writing, and  signs  his  name,  yet  the  law  has  not  been  com- 
plied with,  and  the  instrument  is  void  as  a  will.  Every 
word  and  every  figure  in  it,  to  be  a  valid  olographic  will, 
must  be  in  the  handwriting  of  the  person  making  it.  If 
any  part  of  it  is  in  the  handwriting  of  any  other  person, 
or  if  any  part  of  it  is  printed,  it  will  be  illegal  and  invalid. 
In  one  case  in  California  it  was  decided  that  nothing  more 
than  the  figures  "1880"  in  print,  after  "April  1"  in  the 
testator's  handwriting,  made  the  document  illegal  as  an 
olographic  will.  Not  only  must  the  document  be  entirely 
in  the  handwriting  of  the  person  making  an  olographic  will, 
but  it  must  always  be  dated.  If  otherwise  lawfully  made, 
that  is,  written  and  signed  by  the  testator  himself,  but 
with  the  date  omitted,  the  paper  is  invalid  as  a  will.  As 
before  stated,  a  will  of  this  kind  need  not  be  in  any  par- 
ticular form.  It  may  even  be  in  the  form  of  a  letter,  and 
if  it  appears  that  the  writer  intended  to  thus  make  a  testa- 
mentary disposition  of  his  property,  it  will  be  considered 
as  his  last  will  and  testament.  When  a  will  is  thus  law- 
fully made,  entirely  written,  dated,  and  signed  by  the  hand 
of  the  testator  himself,  it  constitutes  the  most  satisfactory 
manner  in  which  a  will  can  be  made,  and  is  less  liable  to 
the  attacks  of  will-breaking  lawyers  than  is  a  formal  will, 
written  and  executed  under  the  supervision  of  a  legal 
adviser.  For  olographic  wills  are  usually  brief,  whereas 
a  will  in  the  handwriting  of  a  lawyer  is  apt  to  have  its 
length  gauged  by  the  size  of  the  estate  or  the  amount  of 
the  fee ;  and,  too,  an  olographic  will  is  free  from  the 
technical  terms  and  legal  phrases  which  never  cease  to  stir 
up  controversies  in  the  courts.  For  these  reasons,  an  olo- 
graphic will,  when  made  by  a  person  of  ordinary  intelli- 
gence, is  the  kind  to  be  preferred. 
Civil  Code,  Section  1277. 


482  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  850.— FORM  OF  OLOGRAPHIC  WILL.— The 

following  is  a  form  of  olographic  will,  which  meets  the 
requirements  of  the  law.  The  date,  names,  amounts,  and 
the  signature  must  be  filled  in,  and  the  whole  written  by 
the  maker  of  the  will  alone: — 

,  Cal. ,  190.. 

I  declare  this  to  be  my  last  will  and  testament.     I  give 

and  bequeath  to the  sum  of 

Dollars ;  I  give  and  bequeath  to 

the  sum  of 

Dollars ;  I  give  and  bequeath  to 

and all  the  residue  of  my 

property,  of  whatever  kind  and  wherever  situated,  share 
and  share  alike. 

The  foregoing  form  will  be  as  good  as  any  other;  and, 
indeed,  any  form  is  good  as  an  olographic  will,  if  the  in- 
tention of  the  writer  to  make  it  his  will  appears  in  it,  and 
the  disposition  which  he  desires  to  make  of  his  property. 

Section  851.— WILL  ATTESTED  BY  WITNESSES.— 

A  will  which  is  not  in  the  handwriting  of  the  maker  must 
be  executed  and  attested  as  follows:  (1)  It  must  be  sub- 
scribed at  the  end  by  the  testator  himself,  or  some  person 
in  his  presence  and  by  his  direction  must  subscribe  his 
name  to  it ;  (2)  The  subscription  must  be  made  in  the 
presence  of  the  attesting  witnesses,  or  be  acknowledged 
by  the  maker  to  them  to  have  been  made  by  him  or  by  his 
authority;  (3)  The  maker  must,  at  the  time  of  subscribing 
or  acknowledging  the  will,  declare  to  the  attesting  wit- 
nesses that  the  instrument  is  his  will ;  (4)  There  must  be 
two  attesting  witnesses  to  a  will,  and  each  of  them  must 
sign  the  will  as  a  witness,  at  the  end  of  it,  at  the  testator's 
request  and  in  his  presence.  The  testator  must  either  sign 
his  name  at  the  end  of  the  will,  or  have  it  signed  by  some 
one  in  his  presence  and  at  his  direction. 
Civil  Code,  Section  1276. 

Section  852.— GIFTS  TO  SUBSCRIBING  WIT- 
NESSES.— All   legacies  and   gifts   of  any  kind,   made  or 


LAST  WILLS  AND  TESTAMENTS.  483 

given  in  any  will  to  a  subscribing  witness,  are  void,  unless 
there  are  two  other  competent  subscribing  witnesses  to 
the  will. 

Civil  Code,  Section  1282. 

Section  853.— HOW  A  WILL  IS  REVOKED.— The  law 

declares  what  acts  work  the  revocation  of  a  will  in  this 
State. 

A  will  is  revoked  by  a  later  will,  declaring  the  revocation 
of  the  prior  one. 

A  will  is  revoked  by  being  burned,  torn,  canceled,  ob- 
literated, or  destroyed,  with  the  intent  and  purpose  of  re- 
voking it,  by  the  testator  himself,  or  by  some  person  in 
his  presence  and  by  his  direction. 

When  a  will  is  canceled  ^r  destroyed  by  any  other  per- 
son than  the  testator,  the  direction  of  the  testator,  and  the 
fact  of  such  cancellation  or  destruction,  must  be  proved 
by  two  witnesses. 

A  prior  will  is  not  revoked  by  a  subsequent  will,  unless 
the  latter  contains  an  express  revocation,  or  provisions 
wholly  inconsistent  with  the  terms  of  the  former  will;  but 
in  other  cases  the  prior  will  remains  effectual  so  far  as 
consistent  with  the  provisions  of  the  subsequent  will. 
Civil  Code,  Sections  1292,  1293,  1296. 

Section    854.— REVOCATION     BY     MARRIAGE.— If 

after  having  made  a  will,  the  testator  marries,  and  has 
issue  of  such  marriage,  born  either  in  his  lifetime  or  after 
his  death,  and  the  wife  or  issue  survives  him,  the  will  is 
revoked,  unless  provision  has  been  made  for  such  issue  by 
some  settlement,  or  unless  such  issue  are  provided  for  in 
the  will,  or  mentioned  in  the  will  so  as  to  show  an  inten- 
tion not  to  make  provision  for  the  child. 

If,  after  making  a  will,  the  testator  marries,  and  the  wife 
survives  the  testator,  the  will  is  revoked,  unless  provision 
has  been  made  for  her  by  marriage  contract,  or  unless  she 
is  provided  for  in  the  will,  or  mentioned  in  the  will  so  as 
to  show  an  intention  not  to  make  provision  for  her. 


484  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

A  will,  executed  by  an  unmarried  woman,  is  revoked  by 
her  subsequent  marriage,  and  is  not  revived  by  the  death 
of  her  husband. 

Civil  Code,  Sections  1298,  1299,  1300. 

Section  855.— SHARE  OF  CHILD  BORN  AFTER 
THE  WILL. — Whenever  a  testator  has  a  child  born  after 
the  making  of  his  will,  either  in  his  lifetime  or  after  his 
death,  and  dies  leaving  such  child  unprovided  for  by  any  set- 
tlement, and  neither  provided  for  nor  in  any  way  mentioned 
in  his  will,  the  child  succeeds  to  the  same  portion  of  the 
testator's  real  and  personal  property  that  he  would  have 
succeeded  to  if  the  testator  had  died  intestate. 
Civil' Code,  Section  1306. 

Section  856.— OMISSION  TO  PROVIDE  FOR  CHIL- 
DREN.— When  any  testator  omits  to  provide  in  his  will 
for  any  of  his  children,  or  for  the  issue  of  any  deceased 
child,  unless  it  appears  that  such  omission  was  intentional, 
the  law  declares  that  such  child  or  the  issue  of  such  child 
must  have  the  same  share  in  the  estate  of  the  testator  as  if 
he  had  died  intestate.  But  the  law  also  provides  that  a 
child  who  has  had  his  share  of  the  estate  advanced  to  him 
during  the  lifetime  of  the  testator,  even  though  not  men- 
tioned in  the  will,  is  not  entitled  to  any  more. 
Civil  Code,  Sections  1307,  1309. 

Section  857.— CHILDREN  OF  DEVISEE.— When  any 

estate  is  devised  to  any  child,  or  other  relation  of  the  tes- 
tator, and  the  devisee  dies  before  the  testator,  leaving  lineal 
descendants,  such  descendants  take  the  estate  so  given  by 
the  will  in  the  same  manner  as  the  devisee  would  have  done 
had  he  survived  the  testator. 

Civil  Code,  Section   1310, 

Section  858.— WHEN  WILL  TAKES  EFFECT.— A 
will  takes  effect  at  the  testator's  death.  It  can  have  no 
effect  to  pass  any  title  before  his  death. 


LAST  WILLS  AND  TESTAMENTS.  485 

Section  859.— WHEN  LEGACIES  ARE  DUE.— Lega- 
cies are  due  to  those  entitled  to  them  at  the  expiration  of 
one  year  after  the  testator's  death. 

Section  860.— INTEREST  ON  LEGACIES.— Ordinary 
legacies  bear  interest  from  the  time  when  they  become  due. 
A  legacy  to  the  testator's  widow  bears  interest  trom  the 
date  of  his  death. 

Section  861.— GROUNDS  FOR  CONTEST  OF  WILL. 

— The  law  specifies,  as  the  grounds  for  the  contest  of  a 
will,  duress,  menace,  fraud,  or  undue  influence;  and,  also, 
it  is  a  common  ground  for  the  contest  of  a  will,  that  the 
testator  was  not  of  sound  mind.  If  advantage  is  taken  of 
an  old  and  feeble  person,  and  the  facts  are  misrepresented  or 
concealed,  or  threats  or  fraudulent  persuasions  resorted  to, 
by  which  a  testator  is  fraudulently  induced  to  exclude  from 
his  will  the  natural  object  .of  his  bounty,  whom  he  would 
otherwise  have  remembered  and  provided  for,  the  law  will 
interfere  on  behalf  of  the  injured  party  and  set  the  will 
aside.  Yet  it  will  require  clear  and  convincing  proof  to 
set  aside  a  will  upon  these  grounds. 

By  far  the  larger  number  of  will  contests  are  made  upon 
the  ground  that  the  testator  was  not  of  sound  and  dispos- 
ing mind,  but  on  the  contrary  was  afflicted  with  insanity. 
On  this  subject  it  may  be  said,  that  if  there  had  not  been 
so  many  expert  witnesses  the  world  would  never  have 
heard  of  so  many  forms  of  insanity.  Expert  witnesses  on 
insanity  are  ever  readv  to  swear  on  either  side  of  a  will 
contest,  as  they  happen  to  be  first  employed,  and  to  frame 
their  theories  according  to  their  interests.  The  Supreme 
Court  of  California  has  announced,  time  and  time  agam,  its 
own  distrust  of  expert  testimony,  and  has  endeavored  to  be 
guided  by  the  rules  of  reason  and  common  sense  in  its  dis- 
position of  will  cases.  The  facts  must  be  recognized,  that 
there  is  no  satisfactory  definition  of  insanity,  either  in  or 
out  of  the  medical  profession ;  that  no  man  can  truly  mark 


486  BUSINESS  LAWS  FOR  BUSINESS   MEN, 

the  dividing  line  between  sanity  and  insanity ;  that  a  person 
may  be  exceedingly  eccentric,  and  yet  not  be  at  all  insane; 
that  by  a  "sound  mind"  is  meant  only  that  a  person,  in  order 
to  make  a  valid  will,  must  be  of  sufficient  understanding  to 
know  the  character  and  extent  of  his  property,  to  know  and 
recollect  the  natural  objects  of  his  bounty,  to  know  to  whom 
he  wishes  to  leave  his  property,  and  to  appreciate  and  know 
the  character  of  his  act  when  he  makes  his  will.  If  this 
is  the  state  of  his  mind,  no  eccentricity  of  speech  or  conduct, 
and  no  impairment  of  mental  power,  will  have  any  effect  to 
invalidate  the  solemn  act  of  disposing  of  his  estate  by  last 
will  and  testament. 

Section  861a.— ADMINISTRATION  OF  ESTATES.— 

For  the  law  as  to  settlement  of  estates  in  court,  see  the  last 
subject  in  the  book,  "Administration  of  Estates." 

Sections  Omitted 

Sections  862  to  871,  inclusive — Sections  862  to  871,  in- 
clusive, being  the  subject  of  "Estray  Law  of  California,"  is 
omitted  from  the  Eighth  Edition,  and  other  subjects  added 
of  greater  value  and  more  general  interest. 


PART  VI 

CORPORATIONS  IN  CALIFORNIA 

Section   872.— NATURE   OF   CORPORATIONS.— The 

definition  of  corporations  given  by  the  law  of  California  is, 
"A  corporation  is  a  creature  of  the  law,  having  certain  pow- 
ers and  duties  of  a  natural  person."  Unlike  a  natural  per- 
son, who  may  act  in  business  affairs  as  his  individual  will 
may  dictate,  a  corporation  can  only  act  through  its  officers 
in  the  manner  prescribed  by  the  law  creating  it.  The 
nature  of  a  corporation  is  peculiar  in  another  respect. 
While  the  rights  and  privileges  of  a  natural  person,  con- 
sidered as  such,  will  terminate  by  his  death,  the  rights  and 
privileges  of  the  corporation  do  not  end,  or  vary,  upon  the 
death  or  change  of  any  of  the  individual  members.  Judge 
Kent,  the  eminent  lecturer  on  law,  has  said  that  the  object 
of  a  corporation  is  "to  enable  the  members  to  act  by  one 
united  will,  and  to  continue  their  joint  powers  and  property 
in  the  same  body,  undisturbed  by  the  change  of  members, 
and  without  the  necessity  of  perpetual  conveyances,  as  the 
rights  of  members  pass  from  one  individual  to  another. 
All  the  individuals  composing  a  corporation,  and  their  suc- 
cessors, are  considered  in  law  but  as  one  moral  person, 
capable,  under  an  artificial  form,  of  taking  and  conveying 
property,  contracting  debts  and  duties,  and  of  enjoying  a 
variety  of  civil  and  political  rights." 
Civil  Code,  Section  283. 

Section  873.— FOR  WHAT  PURPOSE  CORPORA- 
TIONS MAY  BE  FORMED.— In  California,  corporations 
may  be  formed  for  any  purpose  for  which  individuals  may 
lawfully  associate  themselves.  And  as  individuals  may 
enter  into  any  business  transactions  not  prohibited  by  law. 

(487) 


488  BUSINESS   lAWS  FOR  BUSINESS   MEN. 

SO  a  corporation  may  be  formed  for  the  purpose  of  carry- 
ing on  any  lawful  business,  of  any  kind  whatever. 
Civil  Code,  Section  286. 

Section  874.— WHO  MAY  FORM  A  CORPORATION. 

— The  law  places  but  two  restrictions  upon  the  formation 
of  corporations,  respecting  the  persons  who  may  organize 
them.  At  least  three  persons  must  join  in  the  formation  of 
a  corporation,  or  as  many  more  as  may  be  desired;  and, 
whether  a  corporation  be  formed  by  three  persons,  or  a 
number  more  than  three,  a  majority  of  such  persons  must  be 
residents  of  the  State  of  California.  Foreign  corporations 
may  do  business  in  the  State,  but  a  corporation  cannot  be 
formed  here  unless  a  majorit)''  of  the  persons  forming  it  are 
residents  of  the  State. 

Civil  Code,  Section  285 ;  Statutes  of  1905,  page  502. 

Section    875.— ARTICLES    OF    INCORPORATION.— 

The  instrument  by  which  a  corporation  is  formed  is  called 
"Articles  of  Incorporation."  Articles  of  Incorporation  must 
be  prepared,  setting  forth  :  (1)  The  name  of  the  corporation  ; 
(2)  the  purpose  for  which  it  is  formed;  (3)  the  place  where 
its  principal  business  is  to  be  transacted ;  (4)  the  term  for 
which  the  corporation  is  to  exist;  (5)  the  number  of  its  Di- 
rectors; (6)  the  amount  of  its  capital  stock,  if  any,  and  the 
number  of  shares  into  which  it  is  divided ;  (7)  the  amount 
actually  subscribed,  and  by  whom. 

Civil  Code.  Sections  289,  290. 

Section  876.— FORM  OF  ARTICLES  OF  INCOR- 
PORATION.— The  following  is  a  form  of  Articles  of  In- 
corporation, which  meets  the  requirements  of  the  law: — 

Articles  of  Incorporation. 
KNOW  ALL  MEN  BY  THESE  PRESENTS :  That  we, 
the  undersigned,  have  this  day  voluntarily  associated  our- 
selves together  for  the  purpose  of  forming  a  corporation, 
under  the  laws  of  the  State  of  California;  and  we  hereby 
certify. 


CORPORATIONS  IN  CALIFORNIA.  489 

F'irst — That  the  name  of  said  corporation  is 

(Here  insert  the  name  selected  for  the  corporation.) 

Second — That  the  purposes  for  which  it  is  formed  are  to 
carry  on  the  business  of 

(Here  insert  the  purposes  of  the  corporation.) 

■    Third — That  the  place  where  its  principal  business  is  to 
be  transacted  is  the  city  of 

(Here  insert  the  name  of  the  place.) 

Fourth — That  the  term  for  which  said  corporation  is  to 
exist  is   

(Here  insert  number  of  years.) 

years  from  and  after  the  date  of  its  incorporation. 

Fifth — That  the  number  of  Directors  of  said  corporation 

shall  be    

(Here  insert  number  of  Directors  agreed  upon.) 

and  that  the  names  and  residence  of  the  Directors  who  are 
appointed  for  the  first  year  are : — 

Names.  Residence. 

(Here  insert  names  and  residence  of  Directors.) 


Sixth — That  the  amount  of  the  capital  stock  of  said  cor- 
poration shall  be   Dollars,  divided 

into thousand  shares,  of  the  par 

value  of  Dollars  each. 

Seventh — That  the  amount  of  said  capital  stock  which 
has  been  actually  subscribed  is Dol- 
lars, and  the  following  are  the  names  of  the  persons  by 
whom  the  same  has  been  subscribed,  to-wit: — 

Subscriber.  Number  of  Shares.  Amount. 


490  BUSINESS   LAWS  FOR   BUSINESS   MEN. 

(Here  insert  names  of  subscribers,  number  of  shares  sub- 
scribed for,  and  amount  of  each  subscription.) 


In  witness  whereof,  we  have  hereunto  set  our  hands  and 
seals,  this day  of ,  190. . 


STATE  OF  CALIFORNIA,  | 
County  of j  ^^• 

On  this  day  of ,  in  the  year  one 

thousand  nine  hundred  and .,  before  me, 

,  a  Notary  Public  in 

and  for  said  county,  residing  therein,  duly  commissioned 
and  sworn,  personally  appeared 


and  ,  personally 

known  to  me  to  be  the  persons  whose  names  are  subscribed 
to  the  within  instrument,  and  they  each  duly  acknowledged 
to  me  that  they  executed  the  same. 

In  witness  whereof,   I  have  hereunto  set  my  hand  and 
affixed   my   official   seal,   at   my   office    in    the    County   of 

,  the  day  and  year  in  this  certificate  first 

above  written. 


Notary   Public   in  and  for  the  County 

of   ,  State  of  California. 

Commission  expires   ,  190. . 

Section  877.— NUMBER  OF  SIGNERS.— The  Articles 
of  Incorporation  must  be  signed  by  at  least  three  persons, 
a  majority  of  whom  must  be  residents  of  California,  and 
each  of  whom  must  make  an  acknowledgment  before  a 
Notary  or  other  officer  authorized  to  take  acknowledgments. 
Civil  Code,  Section  292;  Statutes  of  1905,  page  502. 

Section  878.— FILING    OF    ARTICLES    OF  INCOR- 
PORATION. —  The     Articles     of     Incorporation,     when 


CORPORATIONS  IN  CALIFORNIA.  491 

prepared  and  signed  and  acknowledged,  must  be  filed  in 
the  office  of  the  County  Clerk  of  the  county  in  which  the 
principal  place  of  business  is  located ;  and  a  copy,  certified 
by  the  County  Clerk,  must  be  filed  in  the  office  of  the  Secre- 
tary of  State  at  Sacramento. 

Section  879.— CERTIFICATE  OF  SECRETARY  OF 
STATE. — Upon  receiving  and  filing  in  his  office  the  certi- 
fied copy  of  the  Articles  of  Incorporation  filed  with  the 
County  Clerk,  the  Secretary  of  State  issues  to  the  corpora- 
tion, over  the  great  seal  of  the  State  of  California,  a  certifi- 
cate that  a  copy  of  the  Articles  containing  the  required 
'  statement  of  facts  has  been  filed  in  his  office ;  and  from  the 
time  when  this  certificate  is  issued  the  persons  signing  the 
Articles  of  Incorporation,  and  their  associates  and  suc- 
cessors, become  and  are  created  a  corporation,  under  the 
name  chosen  by  them. 

Civil  Code,  Section  296. 

Section  880.— NAME  OF  CORPORATION  MUST  BF 
NEW. — The  name  selected  by  the  incorporators  must  be 
new;  that  is,  it  must  not  have  the  same  name  as  any  other 
corporation  before  organized  in  this  State ;  nor  can  the  name 
selected  so  closely  resemble  the  name  of  any  other  existing 
corporation  that  it  will  tend  to  deceive;  and  if  Articles  of 
Incorporation  are  sent  to  the  Secretary  of  State  which  con- 
tain the  same  name  as  an  existing  corporation,  or  a  name 
so  closely  resembling  it  as  tends  to  deceive  the  public,  it 
will  be  his  duty  under  the  law  to  refuse  to  file  the  Articles, 
or  issue  his  certificate. 

Statutes  of  1901,  page  629. 

Section  881.— COST  OF  INCORPORATING.— The  fees 
for  forming  a  corporation,  to  be  paid  the  Secretary  of  State, 
are  as  follows:  (1)  For  filing  Articles  of  Incorporation,  if 
the  capital  stock  amounts  to  twenty-five  thousand  dollars 
or  less,  fifteen  dollars ;  if  the  capital  stock  amounts  to  over 


492  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

twenty-five  thousand  dollars,  and  not  over  seventy-five 
thousand  dollars,  twenty-five  dollars;  if  the  capital  stock 
amounts  to  over  seventy-five  thousand  dollars,  and  not  over 
two  hundred  thousand  dollars,  fifty  dollars ;  if  the  capital 
stock  amounts  to  over  two  hundred  thousand  dollars,  and 
not  over  five  hundred  thousand  dollars,  seventy-five  dollars ; 
if  the  capital  stock  is  over  five  hundred  thousand  dollars, 
and  not  over  one  million  dollars,  one  hundred  dollars;  if 
the  capital  stock  is  over  one  million  dollars,  fifty  dollars 
additional  for  every  five  hundred  thousand  dollars  or  frac- 
tion thereof  of  capital  stock  over  and  above  one  million 
dollars.  (2)  For  filing  Articles  of  Incorporation  without 
capital  stock,  except  cooperative  associations,  five  dollars. 
(3)  For  filing  Articles  of  Incorporation  of  cooperative 
associations,  fifteen  dollars.  (4)  For  recording  Articles  of 
incorporation,  twenty  cents  per  folio.  (5)  For  issuing 
certificate  of  incorporation,  three  dollars. 
Statutes  of  1903,  page  27. 

Section  882.— LIMIT  OF  CORPORATE  EXISTENCE. 

— A  corporation,  being  a  creature  of  the  law,  can  only  con- 
tinue for  the  length  of  time  which  the  law  prescribes.  The 
law  of  California  provides  that  the  limit  of  time  for  which 
a  corporation  can  be  formed  in  this  State  is  fifty  years.  The 
Articles  of  Incorporation  may  fix  a  period  of  existence  less 
than  fifty  years,  but  cannot  provide  for  a  longer  period. 
Civil  Code,  Section  296. 

Section  883.— EXTENDING  CORPORATE  EXIST- 
ENCE.— Every  corporation  formed  for  a  period  less  than 
fifty  years  may,  at  any  time  prior  to  the  expiration  of  the 
term  of  its  corporate  existence,  extend  such  term  to  a 
period  not  exceeding  fifty  years  from  its  formation.  Such 
extension  may  be  made  at  a  meeting  of  the  stockholders 
or  members,  called  by  the  directors  expressly  for  con- 
sidering the  subject,  if  voted  by  stockholders  representing 
two-thirds  of  the  capital  stock;  or  by  two-thirds  of  the 


CORPORATIONS  IN  CALIFORNIA.  493 

members;  or  may  be  made  upon  the  written  assent  of  that 
number  of  stockholders  or  members.  A  certificate  of  the 
proceedings  of  the  meeting  must  be  signed  by  the  chairman 
and  the  secretary  of  the  meeting  and  a  majority  of  the 
directors,  and  be  filed  in  the  office  of  the  County  Clerk 
where  the  original  Articles  of  Incorporation  were  filed,  and 
a  certified  copy  must  be  filed  in  the  office  of  the  Secretary 
of  State,  and  thereupon  the  term  of  the  corporation  is  ex- 
tended for  the  specified  period. 

Section  884.— AMENDMENT  OF  ARTICLES  OF  IN- 
CORPORATION.—If  a  corporation  is  formed,  and  it 
should  be  discovered  that  some  important  and  material 
provision  respecting  the  purposes  of  the  corporation  was 
omitted  from  the  Articles  of  Incorporation,  or  that  the 
Articles  as  filed  did  not  contain  all  the  statements  of  fact 
required  by  the  law,  amended  Articles  may  be  filed  con- 
taining the  omitted  matters.  In  order  to  amend  the  Articles 
of  Incorporation,  however,  the  amendment  must  be  ordered 
by  a  majority  vote  of  the  Board  of  Directors  and  must  be 
assented  to  by  the  stockholders  representing  two-thirds 
of  the  subscribed  capital  stock,  such  assent  being  given 
either  by  vote  at  a  meeting  or  by  writing.  A  copy  of  the 
Articles  of  Incorporation,  as  amended,  must  then  be  filed 
in  the  office  where  the  original  was  filed.  The  law  declares 
that  the  time  of  the  existence  of  a  corporation  cannot  be 
extended  by  amendment  of  its  Articles  of  Incorporation. 
Statutes  of  1903,  page  411. 

Section  885. — CHANGE  OF  NAME.— A  corporation  may 
change  its  name.  If  a  corporation  desires  to  change  its 
name,  a  petition  asking  for  the  change  of  name  may  be 
filed  in  the  Superior  Court  of  the  county  in  which  its 
Articles  of  Incorporation  were  originally  filed,  or  in  which 
its  property  is  situated.  A  copy  of  the  petition  must  be 
published  for  four  weeks.  The  Court  will  then  hear  the 
petition,  and  any  objections  which  any  person  may  have 


494  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

to  make  against  the  change  of  name;  and  if  satisfied  that 
the  application  is  made  for  a  good  reason,  the  court  may- 
make  an  order  changing  the  name  of  the  corporation,  A 
certified  copy  of  the  decree  of  the  court  must  be  filed  in  the 
office  of  the  Secretary  of  State  and  in  the  office  of  the  County 
Clerk. 

Civil  Code,   Sections   1276,    1277,   1278;  Act  of  the 

Legislature,  in  effect  May  19,  1907. 
Act  of  the  Legislature,  approved  April  16,  1909. 

Section  886.— CHANGE  OF  PLACE  OF  BUSINESS. 

— A  corporation  may  change  its  place  of  business  from  one 
place  to  another  in  the  same  county,  or  from  one  city  or 
county  to  another  city  or  county  in  the  State.  Before 
such  change  can  be  made,  the  consent,  in  writing,  of  the 
holders  of  two-thirds  of  the  capital  stock  must  be  obtained 
and  filed  in  the  office  of  the  corporation ;  then  notice  of  the 
intended  removal  must  be  published,  for  three  weeks,  in 
a  newspaper  in  the  county;  the  Board  of  Directors  must 
then  meet  and  authorize  the  change ;  and  a  copy  of  the 
resolution  adopted  by  the  Board,  together  with  an  affidavit 
of  the  publication  of  the  notice  (certified  by  the  President 
and  Secretary,  with  the  corporate  seal  affixed),  must  be 
filed  in  each  office  where  the  original  Articles  of  Incor- 
poration were  filed.  After  these  requirements  are  complied 
with,  a  corporation  may  lawfully  change  its  place  of  busi- 
ness. 

Statutes  of  1903,  page  254. 

Section  887.— REMOVAL  FROM  ONE  LOCATION 
TO  ANOTHER  IN  SAME  CITY.— The  law  does  not 
require  any  consent  of  stockholders,  or  notice,  or  publica- 
tion, where  a  corporation  desires  to  remove  its  place  of 
business  from  one  location  to  another  in  the  same  city, 
town,  or  village.  Such  removal  may  be  made  by  authority 
alone  of  a  resolution  of  the  Board  of  Directors. 


.     CORPORATIONS  IN  CALIFORNIA.  495 

Section  887a.— USE  OF  WORD  "TRUST."— No  corpo- 
ration is  allowed  to  use  the  word  "trust,"  or  "trustee,"  as  a 
part  of  its  corporate  name,  unless  its  Articles  of  Incorpora- 
tion authorize  it  to  act  as  executor,  administrator,  guardian, 
assignee,  receiver,  depositary,  or  trustee.  Before  the  Secre- 
tary of  State  issues  to  any  corporation,  authorized  in  its 
articles  of  incorporation  to  act  as  executor,  administrator, 
guardian,  assignee,  receiver,  depositary  or  trustee,  there 
must  be  filed  in  his  office  the  affidavit  of  the  persons  named 
in  said  articles  as  the  first  directors  of  the  corporation,  that 
at  least  one  hundred  thousand  dollars  of  the  capital  stock, 
has  actually  been  subscribed,  and  paid  in  to  a  person  named 
in  such  affidavit,  for  the  benefit  of  the  corporation. 

Act  of  the  Legislature,  in  effect  March  21,  1907. 

Section  887b.— ANNUAL  LICENSE  TAX.— A  new  law 

was  passed  by  the  Legislature  of  1907,  and  amended  in  1909, 
about  the  annual  license  tax  of  corporations,  which  takes 
the  place  of  previous  legislation. 

The  law  imposes  an  annual  license  tax,  to  be  paid  to  the 
secretary  of  state,  between  the  first  day  of  July  and  the 
first  day  of  September.  If  not  paid  on  or  before  the  hour 
of  four  o'clock,  P.  M.,  of  the  first  day  of  September,  the 
tax  becomes  delinquent,  and  ten  dollars  is  added  thereto, 
as  a  penalty  for  such  delinquency.  The  license  tax  author- 
izes the  corporation  to  transact  its  business  during  the  year, 
or  for  any  fractional  part  of  the  year,  in  which  the  license 
is  paid.  The  year  meant  by  the  law  is  from  the  first  day 
of  July  to  and  including  the  thirtieth  day  of  June  next 
thereafter.  This  license  tax  is  imposed  upon  all  corpora- 
tions, whether  foreign  or  domestic.  For  the  failure  to  pay 
the  tax,  the  charter  of  a  domestic  corporation  may  be  for- 
feited, and  also  the  right  to  do  business  in  California  of 
any  foreign  corporation. 

At  the  time  of  filing  a  certified  copy  of  articles  of  incor- 
poration of  any  corporation  when  filed  on  or  between  the 
first  day  of  July  and  the  thirtieth  day  of  September,  in  any 


496  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

year,  there  shall  be  paid,  in  addition  to  all  other  fees  required 
by  law  to  be  paid  to  the  Secretary  of  State,  the  full  amount 
of  the  license  tax  provided  to  be  paid  in  section  two  of  this 
act;  when  filed  on  or  between  the  first  day  of  October  and 
the  thirty-first  day  of  December,  in  any  year,  a  sum  equal 
to  three-fourths  of  the  license  tax  provided  for  in  section  two 
of  this  act  shall  be  paid ;  when  filed  on  or  between  the  first 
day  of  January  and  the  thirty-first  day  of  March,  in  any 
year,  a  sum  equal  to  one-half  of  such  license  tax  provided 
for  in  section  two  of  this  act  shall  be  paid,  and  when  filed 
on  or  between  the  first  day  of  April  and  the  thirtieth  day  of 
June,  in  any  year,  a  sum  equal  to  one-fourth  of  such  license 
tax  provided  for  in  section  two  of  this  act  shall  be  paid. 
Upon  receipt  of  such  full  or  fractional  license  tax  the  Secre- 
tary of  State  shall  issue  a  license  receipt  for  the  full  or  for 
the  fractional  part  of  the  then  current  fiscal  year. 

The  amount  of  the  license  tax  imposed  is  as  follows : 
When  the  authorized  capital  stock  of  the  corporation  does 
not  exceed  ten  thousand  dollars  the  tax  shall  be  ten 
dollars;  when  the  authorized  capital  stock  exceeds  ten 
thousand  dollars  but  does  not  exceed  twenty  thousand 
dollars  the  tax  shall  be  fifteen  dollars ;  when  the  authorized 
capital  stock  exceeds  twenty  thousand  dollars  but  does  not 
exceed  fifty  thousand  dollars  the  tax  shall  be  twenty  dol- 
lars ;  when  the  authorized  capital  stock  exceeds  fifty  thou- 
sand dollars  but  does  not  exceed  one  hundred  thousand 
dollars  the  tax  shall  be  twenty-five  dollars ;  when  the  au- 
thorized capital  stock  exceeds  one  hundred  thousand  dol- 
lars but  does  not  exceed  two  hundred  and  fifty  thousand 
dollars  the  tax  shall  be  fifty  dollars ;  when  the  authorized 
capital  stock  exceeds  two  hundred  and  fifty  thousand  dol' 
lars  but  does  not  exceed  five  hundred  thousand  dollars  the 
tax  shall  be  seventy-five  dollars ;  when  the  authorized  capi- 
tal stock  exceeds  five  hundred  thousand  dollars  but  does 
not  exceed  two  million  dollars  the  tax  shall  be  one  hundred 
dollars ;  when  the  authorized  capital  stock  exceeds  two 
million  dollars  but  does  not  exceed  five  million  dollars  the 


CORPORATIONS  IN  CALIFORNIA.  497 

tax  shall  be  two  hundred  dollars;  when  the  authorized 
capital  stock  exceeds  five  million  dollars  the  tax  shall  be 
two  hundred  and  fifty  dollars. 

Act  of  the  Legislature,  approved  March  20,  1907. 

A  corporation  which  has  failed  to  pay  the  license  tax  may 
be  reinstated,  and  relieved  from  forfeiture,  by  paying  all 
delinquent  license  taxes  and  penalties  incurred. 

Act  of  the  Legislature,  approved  March  19,  1909. 

Section  887c.— DUPLICATE  OF  LOST  CERTIFI- 
CATE.— Whenever  a  certificate  of  stock  in  a  California 
corporation  is  lost  or  destroyed,  the  owner  may  bring  an 
action  against  the  corporation,  in  the  Superior  Court  of 
the  county  in  which  its  principal  place  of  business  is 
located,  for  the  purpose  of  obtaining  a  new  or  duplicate 
certificate. 

Statutes  of  1905,  page  500. 

Section  887d.— CORPORATIONS  TO  LOAN  MONEY 
ON  CHATTEL  MORTGAGES.— A  corporation  may  be 
organized  for  the  sole  purpose  of  loaning  money  upon  the 
pledge  of  goods  and  chattels.  Such  corporation  must  have 
a  capital  stock  of  $50,000,  or  over,  and  all  the  capital  stock 
must  be  actually  subscribed,  and  at  least  50  per  cent  actually 
paid  in,  before  any  business  is  transacted. 
Statutes  of  1905,  page  711. 

Section  888.— CAPITAL  STOCK.— The  law  provides 
that  all  corporations  for  profit  in  California  must  issue  cer- 
tificates for  stock  when  fully  paid  up,  signed  by  the  Presi- 
dent and  Secretary,  and  may  provide,  in  their  By-Laws 
for  issuing  certificates  prior  to  the  full  payment,  under  such 
restrictions  and  for  such  purposes  as  their  By-Laws  may 
provide.  '  The  corporation  must  keep  an  account  of  its  stock, 
by  whom  owned,  and  the  amount  of  subscriptions  unpaid. 
It  may  issue  its  stock  and  commence  business  before  sub- 
scriptions are  all  paid  up,  and  even  before  the  stock  is  all 


498  BUSINESS   LAWS   FOR   BUSINESS    MEN. 

subscribed  for.  The  capital  stock  is  the  fund  upon  which 
the  corporation  does  business,  and  is  the  sole  basis  of  its 
credit.  Therefore,  no  corporation  can  issue  stock,  except 
for  money  paid,  labor  done,  or  property  actually  received, 
and  all  fictitious  increase  of  stock  is  declared  by  the  law 
to  be  void. 

Constitution  of  California,  Article  12,  Section  11  . 
Civil  Code,  Section  323. 

Section  889.— AMOUNT  OF  SUBSCRIBED  CAPITAL 
TO  BE  PAID  IN. — It  is  only  in  the  case  of  particular 
corporations  that  the  law  requires  a  certain  amount  of  the 
subscribed  capital  stock  to  be  paid  in  when  the  corpo- 
ration is  formed.  As  a  general  rule  there  is  no  requirement 
on  the  subject.  The  instances  in  which  a  certain  per  cent  of 
the  capital  stock  is  required  to  be  paid  in  will  be  stated  in 
relation  to  particular  corporations.  Any  certificate  issued 
prior  to  full  payment  must  show  on  its  face  what  amount 
has  been  paid  thereon. 

Section  890.— STOCKHOLDERS  AND  MEMBERS.— 

Certain  corporations  are  not  required  to  have  any  capital 
stock,  and  a  person  associated  with  others  in  such  a  cor- 
poration is  called  a  member.  The  holder  of  shares  in  a 
corporation  having  a  capital  stock  is  called  a  stockholder. 

Section  891.— SHARES  OF  STOCK.— Whenever  the 
capital  stock  of  a  corporation  is  divided  into  shares,  and 
certificates  have  been  issued,  such  shares  of  stock  are  per- 
sonal property. 

(a)  Preferred  and  Common  Stock. — A  corporation  may 
issue  two  classes  of  stock — preferred  stock  and  common 
stock.  If  the  two  kinds  are  to  be  issued,  the  Articles  of 
Incorporation  must  provide  for  the  classification,  and  must 
contain  a  statement  of  the  number  of  shares  of  preferred 
stock,  and  the  number  of  shares  to  which  no  preference 
is  given.     The  Articles  of  Incorporation  must  also  state, 


CORPORATIONS  IN  CALIFORNIA.  499 

clearly  and  without  evasion,  the  nature  and  extent  of 
the  preference  granted  to  one  class  of  the  stock,  and  except 
as  so  declared  there  shall  be  no  preference ;  and  there  can  be 
no  distinction  between  owners  of  the  two  classes  of  stock 
as  to  voting  power  and  liability  of  stockholders. 

(b)  Bonded  Indebtedness. — A  corporation  may  create  a 
bonded  indebtedness  by  a  vote  of  the  stockholders  repre- 
senting at  least  two-thirds  of  the  subscribed  or  issued  capital 
stock,  at  a  meeting  called  by  the  board  of  directors,  and  after 
giving  the  same  notice  required  for  increase  of  capital  stock; 
or,  a  bonded  indebtedness  may  be  created  by  the  unanimous 
vote  of  the  board  of  directors,  approved  by  the  written  assent 
of  the  stockholders  holding  two-thirds  of  the  subscribed  or 
issued  capital  stock,  in  the  same  manner  as  is  provided  for 
decreasing  capital  stock.  The  law  does  not  limit  the  amount 
to  which  a  bonded  indebtedness  may  go,  but  merely  pro- 
vides that  a  corporation  may  create  or  increase  its  bonded 
indebtedness  in  the  manner  stated. 

Act  of  the  Legislature,  in  eflFect  May  18,  1907. 

Section  892.— SUBSCRIPTION   FOR  STOCK.— When 

a  corporation  is  formed,  and  a  person  subscribes  for  a 
certain  number  of  shares,  by  such  subscription  he  becomes 
the  owner  of  the  stock;  and  it  is  not  essential  to  create  his 
rights  as  owner  that  the  certificate  should  actually  be  issued 
to  him.  The  other  incorporators  or  promoters  cannot,  after 
a  person  has  become  a  subscriber  for  stock,  arbitrarily  say, 
"We  will  not  issue  the  stock  to  him,"  and  thus  avoid  the 
binding  force  of  the  subscription ;  nor  can  the  subscriber 
himself  say,  where  the  parties  have  acted  in  good  faith,  "J 
have  changed  my  mind ;  I  will  not  take  the  stock."  By  the 
subscription  merely,  the  subscriber  becomes  bound  to  ac- 
cept and  pay  for  the  shares  he  has  subscribed  for.  And 
to  guard  against  any  imposition  upon  those  who  have  sub- 
scribed for  stock,  the  law  provides  that  a  subscription  fOr 
capital  stock  cannot  be  rescinded  or  canceled,  except  for 
fraud  or  mistake,  without  the  unanimous  consent  of  all  the 


500  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Stockholders.  What  mistakes,  or  what  acts  of  fraud  in  the 
organization  of  a  corporation,  would  entitle  any  party  to 
demand  that  a  subscription  for  stock  be  canceled,  must 
depend  upon  the  peculiar  facts  of  each  case.  If  a  party 
were  induced  by  false  statements  or  intentional  misrep- 
resentations, concerning  material  matters  connected  with 
the  proposed  corporation,  to  subscribe  for  'its  stock,  this 
would  be  a  fraud  upon  him  for  which  he  could  demand 
that  his  subscription  be  canceled.  But,  whatever  the  rights 
of  the  subscriber  might  be  in  the  courts,  the  corporation 
itself  can  never  cancel  a  subscription  for  stock  without  first 
having  the  unanimous  consent  of  all  the  stockholders. 
(Decided  by  the  Supreme  Court  in  the  case  of  Pacific  Fruit 
Company  vs.  Coon,  which  decision  is  printed  in  Volume  107 
of  the  California  Reports,  page  447.) 

Section  893.— TRANSFER  OF  SHARES  OF  STOCK.— 

Shares  of  stock  in  a  corporation  are  transferred  by  in- 
dorsement and  the  delivery  of  the  certificate.  The  indorse- 
ment is  made  by  the  signature  of  the  owner,  his  agent, 
attorney,  administrator,  or  executor.  The  transfer  thus 
made,  by  indorsement  and  delivery,  and  nothing  more,  is 
valid  between  the  parties  to  it.  But  to  make  such  a  trans- 
fer good  as  to  third  parties,  something  more  is  required ; 
the  transfer  must  be  entered  upon  the  books  of  the  cor- 
poration, so  as  to  show  the  names  of  the  parties  by  whom 
and  to  whom  transferred,  the  number  of  the  certificate,  the 
number  of  shares,  and  the  date  of  the  transfer. 
Civil  Code,  Section  324. 

Section  894.— TRANSFER  OF  STOCK  HELD  BY 
NON-RESIDENT.— The  officers  of  a  corporation  are  not 
bound  to  enter  on  its  books  any  transfer  of  its  shares 
owned  by  parties  residing  out  of  the  State,  and  are  not 
bound  to  issue  a  certificate  to  the  transferee,  unless  the 
person  claiming  under  the  transfer,  or  the  attorney  or 
agent  of  the   non-resident   owner,   makes   an   affidavit   or 


CORPORATIONS  IN  CALIFORNIA.  501 

produces  other  satisfactory  evidence  that  the  non-resident 
owner  was  alive  at  the  date  of  the  transfer;  and  if  this 
affidavit  is  not  made  or  evidence  of  such  fact  produced, 
the  corporation  may  require  an  indemnity  bond,  with  two 
sureties,  conditioned  to  protect  the  corporation  against 
any  liability  to  the  estate  of  the  owner  of  the  shares,  in 
case  of  his  being  in  fact  dead  before  the  transfer;  and  if 
neither  the  affidavit  nor  other  evidence,  nor  the  indemnity 
bond,  is  furnished  when  required,  the  corporation  and  its 
officers  will  not  be  liable  for  refusing  to  enter  the  transfer 
on  the  books. 

Civil  Code,  Section  326. 

Section  895.— TRANSFER  OF  STOCK  HELD  BY 
MARRIED  WOMAN. — Shares  of  stock  in  corporations 
held  by  or  owned  by  a  married  woman  may  be  transferred 
by  her,  or  her  agent  or  attorney,  without  the  signature  of 
her  husband,  by  indorsement  and  delivery  of  the  stock. 
Civil  Code,  Section  325. 

Section  896.— VOID  CERTIFICATES.— It  is  unlawful 
for  any  corporation  in  California  to  issue  stock  except  for 
money  paid,  labor  done,  or  property  actually  received. 
Stock  cannot  be  lawfully  issued  without  such  considera- 
tion, and  all  certificates  issued  by  any  corporation  in  viola- 
tion of  this  provision  of  the  law  are  void. 
Civil  Code,  Section  359. 

Section  897.— REMEDY   AGAINST   CORPORATION 
REFUSING  TO  REGISTER  TRANSFER  OF  STOCK. 

— If  the  officers  of  a  corporation  refuse  to  register  a  trans* 
fer  of  stock  on  its  books,  the  person  to  whom  the  stock 
has  been  transferred  may  lawfully  treat  such  refusal  as  a 
conversion  of  the  shares  by  the  corporation.  He  may  then 
sue  the  corporation  and  obtain  a  judgment  for  the  value 
of  the  stock  at  the  time  of  the  refusal  to  register  the  trans- 
fer, with  interest  at  seven  per  cent  per  annum  from  that 
time. 

Civil  Code,  Section  3336. 


502  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

Section  898.— CERTIFICATES  OF  STOCK  ARE 
NOT  NEGOTIABLE.— Certificates  of  stock  in  a  corpo- 
ration are  not  negotiable,  in  a  commercial  sense.  They  are 
mere  evidences  of  the  holder's  title  to  a  given  share  in  the 
property  and  franchises  of  the  corporation  of  which  he 
is  a  member.  Consequently,  if  a  corporation  issues  to  an 
owner  of  shares  of  stock  a  certificate  transferable  on  the 
books  of  the  company  by  indorsement  and  surrender  of 
the  certificate,  and  he  indorses  the  same  and  then  loses  it, 
and  it  comes  into  the  hands  of  a  bona  fide  purchaser  for 
value,  such  purchaser  acquires  no  right  to  the  stock, 
(Decided  by  the  Supreme  Court  in  the  case  of  Sherwood 
vs.  Meadow  Valley  Mining  Company,  which  decision  is 
printed  in  Volume  50  of  the  California  Reports,  page  412.) 
In  the  case  cited,  the  language  of  Parsons  on  Contracts 
is  referred  to,  where  he  says :  "The  result  would  seem  to 
be  that  all  corporation  bonds  and  government  stocks, 
which  pass  by  delivery,  or  indorsement  with  delivery,  are 
negotiable ;  but  that  certificates  of  stock  in  a  corporation 
are  not." 

Section  899.— WHEN  CORPORATION  CANNOT 
CLAIM  ITS  OWN  STOCK  INVALID.— A  corporation  is 
precluded  from  setting  up  the  claim  that  its  own  stock  is 
invalid,  or  not  issued  according  to  law,  where  the  rights 
of  a  bona  fide  purchaser  are  involved.  So  it  has  been  held 
that,  where  a  corporation  issues  capital  stock,  and  repre- 
sents it  as  fully  paid  and  causes  it  to  be  so  listed  on  the 
stock  and  bond  exchange,  the  law  will  deny  it  the  right 
to  claim  that  the  stock  is  invalid,  as  against  a  bona  fide 
purchaser,  even  if  the  stock  was  in  fact  issued  without 
consideration.  (Decided  by  the  Supreme  Court  in  the  case 
of  Smith  vs.  Martin,  which  decision  is  printed  in  Volume 
135  of  the  California  Reports,  page  247.) 

Section  900.— REMEDY  AGAINST  CORPORATION 
FOR  REFUSING  TO  RECOGNIZE  STOCKHOLDER. 

— If  the  corporation  refuses  to  recognize  the  lawful  holder 


CORPORATIONS  IN  CALIFORNIA.  503 

of  Stock  as  a  stockholder,  or  refuses  to  deliver  to  hiin  a 
new  certificate,  or  to  register  him  on  its  books,  he  has  two 
remedies.  He  may  sue  in  the  Superior  Court  and  compel 
the  corporation  to  recognize  hira  as  a  stockholder,  by 
registering  him  upon  its  books  and  delivering  to  him  a  new 
certificate ;  or,  he  may  sue  the  corporation  for  damages, 
on  the  ground  that  by  its  refusal  it  has  been  guilty  of  a 
conversion  of  his  stock.  These  remedies  are  given  not 
only  to  the  real  owner  of  the  stock,  but  also  to  others,  as 
the  pledgee,  the  guardian,  or  the  administrator.  (Decided 
by  the  Supreme  Court  in  the  case  of  Herbert  Kraft  Com- 
pany Bank  vs.  Bank  of  Orland,  which  decision  is  printed 
in  Volume  133  of  the  California  Reports,  page  64.) 

Section  901.— MORTGAGE  OF  SHARES  OF  STOCK. 

— The  statute  law  declares  what  personal  property  may 
be  mortgaged  in  California.  Other  personal  property, 
however,  may  be  mortgaged,  and  the  mortgage  will  be 
good  as  between  the  parties  to  it.  Shares  6f  stock  in  a 
corporation  are  personal  property.  A  mortgage  of  shares 
of  stock  may  be  made,  which  is  valid  and  binding  between 
the  parties,  and  without  delivery  of  possession  of  the  cer- 
tificate of  stock.  Such  a  mortgage  is  void  as  to  creditors 
and  subsequent  purchasers  in  good  faith  for  a  valuable  con- 
sideration ;  but  where  no  such  persons  are  complaining,  the 
mortgage  is  good  between  the  parties  to  it. 

Section  902.^^SEAL  OF  CORPORATION.— Every  cor- 
poration must  have  a  seal,  but  it  need  not  be  used  upon 
every  occasion.  Corporations,  like  individuals,  may  appoint 
agents,  and  make  most  of  the  contracts  which  fall  within 
their  general  powers,  without  the  use  of  a  seal. 

Section  903.— DEED  WITHOUT  CORPORATE 
SEAL. — In  a  suit  involving  the  validity  of  the  deed  of  a 
corporation,     executed     without    the     corporate     seal     by 


504  BUSINESS  LAWS  FOB  BUSINESS   MEN. 

persons  signing  as  Directors,  one  who  claims  under  such 
deed  must  show  affirmatively  that  the  deed  was  authorized 
by  a  resolution  of  the  Directors  entered  on  the  records  of  the 
corporation,  or  that  it  was  ratified  by  such  resolution. 
(Decided  by  the  Supreme  Court  in  the  case  of  Barney  vs. 
Pforr,  which  decision  is  printed  in  Volume  117  of  the  Cali- 
fornia Reports,  page  56.) 

Section  904.— WHAT  REAL  ESTATE  MAY  BE 
HELD  BY  CORPORATION.— A  corporation  may  hold 
indefinitely  any  real  estate  necessary  to  be  used  by  it  in 
the  conduct  of  its  legitimate  business ;  but  the  Constitu- 
tion of  California  provides  that  no  corporation  shall  hold 
for  a  longer  period  than  five  years  any  real  estate,  except 
such  as  may  be  necessary  for  carrying  on  its  business. 
Therefore,  if  a  corporation  acquires  any  real  estate,  in  any 
manner,  which  is  not  necessary  in  carrying  on  its  business, 
it  must  sell  such  real  estate  within  five  years  after  the  title 
is  vested  irf  it;  and  if  it  does  not  do  so,  the  Attorney- 
General  may  bring  a  suit  against  the  corporation,  in  the 
name  of  the  people  of  the  State,  to  compel  it  to  sell  the 
land. 

Constitution  of  California,  Article  12,  Section  9. 

Section  905.— CORPORATION  MUST  KEEP  WITH- 
IN OBJECT  OF  ITS  CREATION.— It  is  one  of  the  car- 
dinal principles  governing  the  conduct  of  a  corporation 
that  it  must  keep  within  the  purposes  and  objects  for 
which  it  was  organized.  If  organized  to  carry  on  a  par- 
ticular business,  it  cannot  engage  in  another.  So,  if  a 
corporation  formed  to  do  a  banking  business  should  engage 
in  insurance,  the  latter  business  would  be  outside  of  its 
legitimate  object,  and  its  acts  in  that  business  would  have 
no  validity.  So  far  has  this  principle  been  carried  in 
California,  our  Supreme  Court  has  said  that  a  contract  of 
a  corporation,  outside  of  the  object  of  its  creation  as  defined 
by  the  law  of  its  organization,  and  therefore  beyond  the 


CORPORATIONS  IN  CALIFORNIA.  605 

powers  conferred  upon  it  by  the  Legislature,  is  not  voidable 
only,  but  wholly  void  and  of  no  legal  effect.  The  objection 
to  such  a  contract  is  not  merely  that  the  corporation 
ought  not  to  have  made  it,  but  that  it  could  not  make  it. 

Section  906.— VOID  CONTRACT  CANNOT  BE 
RATIFIED. — A  contract  which  is  absolutely  void,  because 
outside  of  the  objects  of  the  corporation,  cannot  be  rati- 
fied. The  contract  cannot  be  ratified  by  either  party  to 
it,  because  it  could  not  have  been  authorized  by  either. 
No  performance  on  either  side  can  give  a  void  contract 
any  validity,  or  be  the  foundation  of  any  right  of  action 
upon  it.  (Decided  by  the  Supreme  Court  in  the  case  of 
Chemical  National  Bank  vs.  Havermal,  which  decision  is 
printed  in  Volume  120  of  the  California  Reports,  page  53.) 

Section  907.— WHEN  CORPORATION  BOUND  BY 
ITS  OWN  INVALID  ACT.— While  an  absolutely  void 
contract  cannot  be  ratified,  yet  corporations  are  often 
bound  by  their  own  invalid  act,  as  where  the  Directors 
have  done  an  act  without  their  lawful  power,  but  the 
corporation  has  retained  the  benefits  and  still  enjoys  the 
fruits  of  the  transaction.  In  such  a  case,  the  corpora- 
tion is  not  permitted  to  deny  the  validity  of  its  own  act, 
although  it  was  irregular  or  invalid.  This  rule  is  illus- 
trated by  a  decision  of  the  Supreme  Court,  where  a  prom- 
issory note  was  irregularly  executed  by  the  President  and 
Secretary  of  a  corporation,  and  upon  being  sued  on  the 
note,  the  corporation,  without  returning  or  offering  to 
return  the  money  received  from  the  lender,  denied  the 
validity  of  the  note  and  attempted  to  repudiate  it.  The 
Supreme  Court  said :  "Assuming  that  the  contract  was  out- 
side its  power,  the  law  does  not  allow  a  corporation  to 
retain  the  benefits  which  it  has  received  from  the  contract 
and  escape  liability  upon  it.  The  invalidity  of  a  contract 
is  subject  to  the  equitable  exception  that,  although  a  cor- 
poration in  making  a  contract  acts  in  disagreement  with  its 


506  BUSINESS  liAWS  FOR  BUSINESS  MEN. 

charter,  where  it  is  a  simple  question  of  capacity  or  author- 
ity to  contract,  arising  either  on  a  question  of  regularity 
of  organization,  or  of  power  conferred  by  the  charter,  a 
party  who  has  had  the  benefit  of  the  agreement  cannot 
be  permitted,  in  an  action  founded  upon  it,  to  question  its 
validity.  It  would  be  in  the  highest  degree  inequitable 
and  unjust  to  permit  the  defendant  to  repudiate  a  contract 
the  fruits  of  which  he  retains.  The  exception  referred  to 
is  founded  upon  the  fact  that  the  contract,  though  invalid, 
has  been  executed  in  the  interests  of  the  corporation,  and 
for  its  benefit  and  advantage.  Where,  therefore,  it  has 
received  the  fruits  of  such  a  contract,  it  cannot  refuse  pay- 
ment on  the  ground  that  it  had  no  power  to  contract.  It 
would  be  otherwise  if  the  contract  had  not  been  executed." 
(Decided  by  the  Supreme  Court  in  the  case  of  Main  vs. 
Casserly,  which  decision  is  printed  in  Volume  97  of  the 
California  Reports,  page  127.) 

Section    908.— NOTICE    TO     CORPORATION.— The 

President  is  the  proper  person  to  whom  notice,  which  is 
to  affect  a  corporation,  is  to  be  given.  The  corporation 
has  no  eyes,  ears,  or  understanding,  save  through  its 
agents.  The  President  is  considered  the  head  of  the  cor- 
poration, and  it  is  his  duty  to  report  to  the  Directors 
information  affecting  the  interests  of  the  corporation. 
Therefore,  notice  of  any  matter,  given  to  the  President, 
is  notice  to  the  corporation. 

Section  909.— LEASE  OF  FRANCHISE.— Where  a 
corporation  secures  a  franchise,  by  municipal  grant,  to 
operate  gas  and  electric  works,  and  to  supply  the  inhabit- 
ants of  the  city  with  the  product,  it  cannot  lawfully  lease 
its  works  and  privileges  to  another,  and  such  a  lease,  when 
made,  is  against  public  policy  and  void.  The  reason  for 
this  is,  a  franchise  is  a  personal  privilege,  and  can  never 
be  assigned  without  the  consent  of  the  grantor.  (Decided 
by  the  Supreme  Court  in  the  case  of  Visalia  Gas  and  Electric 


CORPORATIONS  IN  CALIFORNIA.  507 

Light  Company  vs.  Sims,  which  decision  is  printed  in  Volume 
104  of  the  CaHfornia  Reports,  page  326.) 

Section  910.— MORTGAGE  OF  CORPORATION 
PROPERTY.— The  President  has  not  the  power  by  virtue 
of  his  office  to  mortgage  the  property  of  the  corporation. 
Nor  has  the  Secretary  such  power  by  virtue  of  his  office. 
Nor  have  both  together  the  power  which  neither  has  sep- 
arately, nor  have  the  stockholders  such  power.  The  pow- 
ers of  a  corporation  must  be  exercised,  and  its  property 
controlled,  by  its  Board  of  Directors,  the  decision  of  a 
majority  of  the  Directors,  when  lawfully  assembled,  being 
valid  as  a  corporate  act.  A  mortgage  of  the  corporation 
property  can  only  be  made  by  authority  of  a  resolution 
of  the  Board  of  Directors,  adopted  by  a  majority  vote,  at 
a  meeting  lawfully  held,  and  the  transaction  recorded  in 
its  minutes.  If  there  is  no  resolution  of  the  Board  of 
Directors  authorizing  it,  a  mortgage  of  the  corporation's 
property,  though  executed  by  the  proper  officers,  is  illegal 
and  invalid. 

Section     911.— ASSIGNMENT     OF     ACCOUNTS.— In 

the  conveyance  of  real  estate,  and  the  encumbrance  of  cor- 
poration property  by  mortgage,  corporations  are  held  to 
much  narrower  rules  than  apply  to  the  transaction  of  its 
ordinary  business  affairs.  It  is  not  contemplated  that  the 
Board  of  Directors  shall  meet  upon  every  occasion  when 
a  contract  is  to  be  made,  or  other  act  done,  in  the  ordinary 
conduct  of  the  business  of  the  company.  Therefore,  the 
President  or  General  Manager  of  a  corporation  has  power 
to  assign  its  book  accounts  for  collection,  where  the 
assignment  is  in  the  ordinary  course  of  its  business,  and 
known  to  and  acquiesced  in  by  the  Directors,  and  such  a 
transaction  as  the  officers  have  been  in  the  habit  of  doing; 
and  such  assignment  under  such  circumstances  will  be  valid 
without  previous  authorization  by  resolution  of  the  Board. 
The   President   or   General   Manager   may   also   have   like 


508  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

authority  to  make  assignments  of  notes  held  by  the  cor- 
poration, to  its  creditors,  either  in  payment  of  or  as  secur- 
ity for  the  payment  of  a  debt  of  the  corporation,  without 
express  authority  of  the  Board  of  Directors.  (Decided  by 
the  Supreme  Court  in  the  case  of  Greig  vs.  Riordan,  which 
decision  is  printed  in  Volume  99  of  the  California  Reports, 
page  316.) 

Section  912.— LIABILITY  OF  PROMOTERS.— A  pro- 
moter is  one  who  brings  about  the  incorporation  and 
organization  of  a  corporation ;  who  brings  together  the 
persons  who  become  interested  in  the  enterprise,  aids  in 
procuring  subscriptions,  and  sets  in  motion  the  machinery 
which  results  in  the  formation  of  the  corporation.  A  pro- 
moter occupies  a  position  of  confidence  towards  those 
whom  he  induces  to  enter  into  the  interprise.  And  if  a 
promoter  obtains  property  for  the  corporation,  and  trans- 
fers the  property  to  the  corporation  for  a  sum  which  he 
falsely  represents  to  be  the  cost  price,  but  which  is  really 
much  more,  he  will  he  liable  to  the  stockholders  for  the 
profit  made  by  him  through  his  deceit.  And  in  all  other 
matters  a  promoter  must  deal  fairly  and  openly  with  his 
associates  in  the  formation  of  a  corporation. 

Section  913.— WHAT  IS  A  CORPORATION  DE 
FACTO. — It  sometimes  happens  that,  in  the  formation  of  a 
corporation,  many  of  the  acts  required  to  be  performed  in 
order  to  make  a  complete  organization  may  have  been  ir- 
regularly performed,  or  some  of  them  may  have  been  en- 
tirely omitted ;  yet,  if  the  company  has  proceeded,  claiming 
in  good  faith  to  be  a  corporation  under  the  laws  of  Cali- 
fornia, and  is  doing  business  as  such  corporation,  a  party 
with  whom  it  transacts  business,  and  who  accepts  the  ben- 
efit of  its  acts,  cannot  deny  the  validity  of  its  incorporation. 
For  it  is  termed  a  corporation  de  facto,  a  company  in  fact 
doing  the  business  in  good  faith  for  which  it  was  designed, 
although  not  organized  strictly  in  accordance  with  law. 


CORPORATIONS  IN  CALIFORNIA.  509 

Section  914.— WHO  MAY  QUESTION  THE  VALID- 
ITY OF  A  CORPORATION.— The  question  of  the  due 
incorporation  of  any  company  claiming  in  good  faith  to  be 
a  corporation  under  the  laws  of  this  State,  and  doing  busi- 
ness as  such  corporation,  or  of  its  right  to  exercise  corpo- 
rate powers,  cannot  be  inquired  into,  collaterally,  in  any 
private  suit  to  which  such  de  facto  corporation  may  be  a 
party.  The  State  alone,  through  its  Attorney-General,  has 
power  to  bring  a  suit  to  test  the  right  of  such  a  corpora- 
tion to  exercise  corporate  powers. 

Section  915.— DENIAL  THAT  A  CORPORATION 
EXISTS. — It  does  not  follow,  because  the  State  alone  can 
question  the  validity  of  a  corporation  or  its  right  to  exer- 
cise corporate  powers,  when  the  company  claims  in  good 
faith  to  be  a  corporation  and  is  doing  business  as  such, 
that  an  individual  is  never  permitted  to  deny  the  corporate 
existence.  For  it  is  true  that,  whenever  a  corporation 
brings  a  suit  in  the  courts  of  this  State,  it  must  allege  that 
it  is  a  corporation,  and  the  defendant  may  deny  the  fact, 
and  then  the  corporation  must  prove  it.  And  if  it  should 
appear  that  a  body  of  men  had  met  and  declared  that  they 
constituted  themselves  a  corporation,  but  neither  sub- 
scribed to  the  capital  stock,  nor  adopted  Articles  of  Incor- 
poration, nor  appointed  the  officers,  nor  performed  any  act 
in  the  organization  of  the  corporation  required  by  law, 
nor  transacted  any  business  as  a  corporation — in  such  a 
case  the  court  would  declare,  even  in  a  suit  between  private 
parties,  that  there  was  no  incorporation  and  no  right  to 
exercise  corporate  powers. 

Section  916.— STOCKHOLDER'S  RIGHT  TO  IN- 
SPECT BOOKS  AND  RECORDS.— The  stockholder  is 
interested  in  all  the  affairs  and  the  management  of  the 
corporation.  He  is,  in  one  sense,  a  part  owner  of  the  assets, 
his  part  being  represented  by  the  number  of  shares  owned 
by  him.     The  law  of  California,  recognizing  the  necessity 


510  BUSINESS  IjAWS  FOR  BUSINESS  MEN. 

for  an  inspection  by  the  stockholder  of  the  books  and  rec- 
ords, whenever  he  desires  to  do  so,  has  provided  that  all 
corporations  for  profit  must  keep  a  record,  among  other 
things,  of  all  their- business  transactions;  and  that  such 
records  shall  always  be  open  to  the  inspection  of  any  Di- 
rector, member,  or  stockholder.  It  is  the  legal  right  of  the 
stockholder  to  inspect,  and  the  duty  of  the  officers  to  allow 
him  to  inspect,  at  all  times,  the  books  and  records  of  the 
corporation. 

Constitution  of  California,  Article  12,  Section  14; 
Civil  Code,  Section  377. 

Section  917.— MOTIVES  OF  STOCKHOLDERS  IN 
MAKING  EXAMINATION  OF  BOOKS.— The  motives 
of  the  stockholder  in  demanding  the  right  to  make  an 
examination  of  the  books  of  the  corporation  will  make  no 
diflference.  He  may  not  really  have  any  specific  interest 
at  stake,  rendering  his  inspection  necessary ;  there  may  be 
no  beneficial  purpose  on  his  part  for  which  the  examina- 
tion is  desired ;  he  may  wish  to  enforce  a  mere  naked  right, 
or  to  gratify  mere  idle  curiosity;  his  motives  may  in  fact 
be  improper,  a-nd  he  may  be  seeking  to  gain  information 
of  a  secret  nature  with  the  object  of  furnishing  it  to  a, 
rival  company  or  corporation,  to  the  injury  and  damage 
of  the  corporation  whose  books  he  examines ;  but  none  of 
these  facts,  if  they  exist,  will  be  a  legal  excuse  for  refusing 
to  allow  a  shareholder,  however  small  his  interest,  to  ex- 
amine the  books  and  records  of  the  corporation.  The 
shareholder  is  not  required  to  show  any  reason  or  occa- 
sion for  making  the  examination,  nor  can  he  be  met  with 
the  defense  that  his  motives  are  improper.  (Decided  by 
the  Supreme  Court  in  the  case  of  Johnson  vs.  Langdon, 
which  decision  is  printed  in  Volume  135  of  the  California 
Reports,  page  624.) 

Section  918.— LIABILITY  OF  STOCKHOLDERS  FOR 
FURNISHING  INFORMATION  TO  RIVAL  COR- 
PORATION.— When  it  becomes  known  to  the  officers  of 


CORPORATIONS  IN  CALIFORNIA.  511 

a  corporation  that  a  stockholder  has  made  an  examination 
of  the  books  with  an  improper  motive,  and  that  he  has 
furnished  information  thus  obtained  to  a  rival  corporation 
or  company,  the  corporation  he  has  so  injured  and  dam- 
aged is  not  left  by  the  law  without  a  remedy.  The  guilty 
stockholder  cannot  be  enjoined  from  inspecting  the  books, 
nor  can  the  books  be  lawfully  closed  to  him.  But,  by  thus 
obtaining  and  disclosing  information,  he  becomes  liable  m 
damages  to  the  corporation,  and  the  corporation  can  re- 
cover a  judgment  against  him  for  all  the  damages  which 
are  occasioned  to  it  by  his  conduct.  True,  he  may  not  be 
financially  able  to  pay  the  amount  recovered,  and  the 
judgment,  when  obtained,  may  be  worthless;  but  the  law 
does  not  take  these  matters  into  account;  and  a  suit  for 
damages  is  the  only  remedy  a  corporation  has  against  its 
own  stockholder  who  examines  its  books  with  an  improper 
motive  and  for  the  purpose  of  injuring  it. 

Section  919.— REMEDY  OF  STOCKHOLDER  WHEN 
INSPECTION  OF  BOOKS  IS  REFUSED.— If  a  stock- 
holder applies  to  the  proper  officer,  generally  the  secre- 
tary, in  charge  of  the  books,  and  demands  the  right  to 
make  an  examination,  his  remedy  upon  refusal  is  to  apply 
to  the  Superior  Court  of  the  county  for  a  writ  of  mandate. 
The  shareholder  has  a  right  to  be  fully  informed  as  to  the 
conditions  of  the  corporation,  the  manner  in  which  its 
afTairs  are  conducted,  and  how  the  capital  to  which  he  has 
contributed  is  employed  and  managed.  And  if  an  exami- 
nation of  the  books  is  refused  him,  upon  showing  this  fact 
in  a  petition  to  the  Superior  Court,  together  with  the  fact 
that  he  is  a  stockholder,  the  law  requires  the  Court  to 
issue  a  writ  commanding  the  officers  of  the  corporation  to 
open  its  books,  records,  and  journals  to  his  examination 
and  inspection. 

Section  920.— LIABILITY  OF  STOCKHOLDER  FOR 
CORPORATION  DEBTS.— The  law  of  California  im- 
poses  upon   each   stockholder  the   burden   of  paying  the 


512  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

debts  of  the  corporation.  Each  stockholder  is  individu- 
ally and  personally  liable  for  such  proportion  of  the  debts 
of  the  corporation  as  the  amount  of  stock  owned  by  him 
bears  to  the  whole  of  the  subscribed  capital  stock.  That 
is,  if  a  person  owns  shares  of  stock  to  the  amount  of 
$10,000,  and  the  subscribed  capital  stock  is  $100,000,  he 
will  be  individually  and  personally  liable  for  the  one-tenth 
part  of  the  debts  of  the  corporation.  It  will  make  no 
difference  in  his  liability  whether  the  subscriptions  have 
been  paid  in  or  not ;  for  his  proportion  is  measured,  not  by 
the  capital  actually  paid  in,  but  by  the  capital  stock  sub- 
scribed. If  debts  or  claims  are  owing  by  or  presented  to 
a  corporation,  the  stockholder  is  liable  only  for  his  propor- 
tion of  such  debts  or  claims.  It  will  make  no  difference, 
either,  whether  the  corporation  is  a  domestic  or  foreign 
corporation ;  the  liability  of  their  stockholders  in  California 
is  the  same.  The  liability  of  a  stockholder  is  not  released 
by  any  subsequent  transfer  of  stock,  and  such  transfer 
will  not  free  him  from  responsibility  on  account  of  a  debt 
incurred  by  the  corporation  while  he  was  a  stockholder. 

Civil  Code,  Section  322 ;  Statutes  of  1905,  page  396. 

Section  921.— LIABILITY  OF  MEMBER  WHERE 
THERE  IS  NO  CAPITAL  STOCK.— In  corporations 
having  no  capital  stock,  each  member  is  individually  and 
personally  liable  for  his  proportion  of  its  debts  and  liabil- 
ities. His  liability  is  to  be  measured  by  a  comparison  of 
the  amount  of  the  debt  with  the  number  of  members ;  and, 
therefore,  if  the  corporation  owes  $10,000,  and  there  are 
ten  members,  each  will  be  liable  for  the  one-tenth  part  of 
the  debt,  or  $1,000. 

Civil  Code,  Section  322. 

Section  922.— PLEDGEE  OR  TRUSTEE  NOT  LIA- 
BLE FOR  DEBTS. — A  person  who  holds  stock  as  col- 
lateral security  does  not  become,  by  reason  of  the  pledge, 
liable  for  the  debts  of  the  corporation;  but  the  pledgor 


CORPORATIONS  IN  CALIFORNIA.  513 

remains  liable,  as  before  the  pledge.  A  person  holding 
stock  merely  as  a  trustee  does  not  become,  in  such  repre- 
sentative capacity,  liable  for  the  debts  of  the  corporation; 
but  the  person  he  represents  as  trustee  is  deemed  the  stock- 
holder, as  respects  such  liability. 
Civil  Code,  Section  322. 

Section  923.— WHEN  LIABILITY  OF  STOCK- 
HOLDER BEGINS.— The  liability  of  a  stockholder  for 
the  debts  of  the  corporation  begins  when  he  acquires  his 
stock.  He  is  not  liable  for  the  debts  of  the  corporation 
incurred  before  he  acquired  his  stock.  For  instance,  to 
make  a  stockholder  liable  to  pay  his  proportion  of  the 
amount  due  on  a  note  made  by  the  corporation,  it  must 
appear  that  the  debt  for  which  the  note  was  given  was 
incurred  since  he  became  a  stockholder.  For  if  a  corpo- 
ration buys  goods,  before  the  stockholder  acquires  his 
stock,  and  afterwards  makes  its  note  for  the  amount, 
that  stockholder  is  not  liable  on  the  note,  because  it  was 
made  for  a  debt  incurred  prior  to  the  time  when  he  became 
a  stockholder.  The  stockholder's  liability  begins  with  the 
creation  of  the  original  debt,  and  the  debt  must  be  incurred 
while  he  is  a  stockholder,  and  not  before;  foi;  otherwise, 
he  is  not  liable  at  all.  (Decided  by  the  Supreme  Court  in 
the  case  of  Winona  Wagon  Company  vs.  Bull,  which  deci- 
sion is  printed  in  Volume  108  of  the  California  Reports, 
page  1.) 

Section  924.— FRAUDULENT  TRANSFER.— The  ques- 
tion sometimes  arises  whether,  when  a  corporation  becomes 
insolvent,  and  unable  to  pay  its  debts  as  they  become  due  in 
the  ordinary  course  of  business,  a  stockholder  can  transfei 
his  shares  to  another  and  thus  be  rid  of  liability  for  the 
debt?  of  the  concern.  The  Supreme  Court,  in  the  case  of 
Welch  vs.  Sargent,  said  on  this  point :  "Generally  speaking, 
the  law  places  no  restriction  upon  the  right  of  a  stockholder 
of   a   corporation   to   transfer   his    stock,    so    long   as    the 


514  BUSINESS   LAWS   FOR   BUSINESS   MEN, 

corporation  is  solvent.  But  after  the  corporation  has 
become  insolvent,  and  the  stockholder  knows  this,  a 
shareholder  cannot  transfer  his  stock  to  irresponsible 
parties  so  as  to  relieve  himself  from  liability  to  the  credit- 
ors." It  matters  not  what  his  intention  was,  for  he  may 
have  transferred  the  stock  in  good  faith,  yet  the  law  will 
still  protect  the  creditors  of  an  insolvent  corporation  by 
holding  such  a  transfer  void  as  to  them.  (Decided  by  the 
Supreme  Court  in  the  case  of  Welch  vs.  Sargent,  which 
decision  is  printed  in  Volume  127  of  the  California  Reports, 
page  72.) 

Section  925.— STOCKHOLDER  MAY  SUE  OTHER 
STOCKHOLDERS.— A  stockholder  may  sue  other  stock- 
holders in  the  same  corporation  for  their  pro  rata  of  a  debt 
due  him  by  the  corporation.  (Decided  by  the  Supreme 
Court  in  the  case  of  Brown  vs.  Merrill,  which  decision  is 
printed  in  Volume  107  of  the  California  Reports,  page  446.) 

Section  926.— ASSIGNEE  OF  CREDITOR  MAY  SUE 
STOCKHOLDERS.— The  creditor  of  a  corporation  may 
assign  his  account  for  collection,  and  the  assignee  will  have 
the  right  to  sue  the  stockholders  in  his  own  name.  It  is 
no  defense,  in  a  suit  against  stockholders,  that  the  assignee, 
instead  of  the  original  creditor,  brings  the  suit  to  collect 
the  amount  of  the  debt. 

Section  927.— CREDITOR'S  RIGHT  TO  UNPAID 
SUBSCRIPTIONS. — Debts  due  to  a  corporation  consti- 
tute a  portion  of  its  assets,  and  may  be  reached  by  creditors. 
Among  these  are  unpaid  subscriptions  to  stock.  As  to 
creditors,  the  corporation  is  presumed  to  have  sought  credit 
based  on  its  supposed  capital,  actually  paid  in  or  due  from 
its  stockholders.  As  the  supposed  capital  is  the  sole  basis 
of  credit,  the  stockholders,  who  are  the  real  parties  carrying 
on  the  business,  must  make  the  representation  as  to  its 


CORPORATIONS  IN  CALIFORNIA,  515 

capital  good;  and  a  corporation  cannot  release  the  obli- 
gations of  stockholders  to  pay  up  its  unpaid  subscriptions, 
and  thus  evade  the  payment  of  creditors.  And  the  creditors 
may  bring  a  suit  to  collect  the  unpaid  balance  due  on  stock 
of  a  corporation  which  has  become  insolvent. 

Section  928.— WITHIN  WHAT  TIME  SUIT 
AGAINST  STOCKHOLDER  MAY  BE  COM- 
MENCED.— A  suit  against  a  stockholder  by  a  creditor  of 
a  corporation  must  be  commenced  within  three  years  after 
the  cause  of  action  accrues.  If  a  corporation  owes  a  debt, 
and  the  creditor  wishes  to  sue  a  stockholder  for  his  pro- 
portion of  the  amount  due,  he  must  sue  within  three  years 
after  the  debt  was  created,  or  the  liability  of  the  stock- 
holder will  be  barred.  And  in  this  connection  it  has  been 
decided  that  the  liability  of  the  stockholder  cannot  be 
renewed  or  extended  by  any  renewal  or  extension  of  the 
indebtedness  which  the  creditor  may  make  with  the  cor- 
poration. (Decided  by  the  Supreme  Court  in  the  case  of 
Hyman  vs.  Coleman,  which  decision  is  printed  in  Vol- 
ume 82  of  the  California  Reports,  page  650.)  The  liability 
of  the  stockholder  is  created  and  exists  by  statute.  The 
liability  arises  when  a  debt  is  contracted  by  the  corpo- 
ration. 'J'he  liability  is  limited  to  three  years  from  the 
time  it  arises,  and  the  corporation  has  no  power  to  extend 
that  limitation  without  'direct  authority  from  the  stock- 
holders. Therefore,  if  a  debt  is  owing  to  a  corporation,  and 
the  corporation  afterwards  takes  a  note  from  the  debtor, 
the  liability  of  the  stockholder  does  not  begin  when  the 
note  is  given,  but  dates  back  to  the  time  when  the  debt 
was  created.  (Decided  by  the  Supreme  Court  in  the  case 
of  Hunt  vs.  Ward,  which  decision  is  printed  in  Volume 
99  of  the  California  Reports,  page  612.) 

Code  of  Civil  Procedure,  Section  359. 

Section  929.— WHEN  LIABILITY  OF  STOCK- 
HOLDER   IS    SATISFIED.— Each    stockholder    has    a 


516  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

several  liability,  and  that  liability  is  proportionate  to  the 
amount  of  his  stock;  and  when  he  has  paid  his  portion  of 
any  debt,  or  of  all  the  debts  of  the  corporation,  he  is  freed 
from  all  liability  on  that  account. 

Section  930.— LIABILITY  OF  STOCKHOLDERS  IN 
DISTILLERY  FOR  FEDERAL  TAXES.— Every  stock- 
holder, in  a  corporation  possessing  a  still,  distillery,  or  dis- 
tilling apparatus,  is  individually  and  personally  liable  to 
the  United  States  for  the  taxes  imposed  on  the  liquors 
distilled.  His  individual  property,  although  in  no  way  con- 
nected with  the  business  of  such  corporation,  may  be  seized 
and  distrained  for  Federal  taxes  due  on  spirits  produced 
by  it.  (Decided  by  the  Supreme  Court  in  the  case  of 
Richter  vs.  Blasingame,  which  decision  is  printed  in  Vol- 
ume 110  of  the  California  Reports,  page  530.) 

Section  931.— HOLDING  PROPERTY  IN  OTHER 
COUNTIES, — A  corporation  acquiring  or  holding  property 
in  a  county  other  than  its  principal  place  of  business  must 
file  in  the  office  of  the  County  Clerk  of  such  county  a  certi- 
fied copy  of  its  Articles  of  Incorporation.  The  copy  must 
be  certified  by  the  Secretary  of  State. 
Civil  Code,  Section  299. 

Section  932.— WITHIN  WHAT  TIME  CORPORA- 
TION MUST  COMMENCE  BUSINESS.— A  corporation 
must  organize,  by  the  election  of  a  Board  of  Directors,  and 
must  commence  business,  within  one  year  from  the  date  of 
its  certificate  of  incorporation.  If  it  does  not  do  so,  or,  if 
organized  for  the  construction  of  any  particular  works,  it 
fails  to  commence  the  construction  of  its  works  within 
one  year,  any  creditor  may  complain  to  the  Attorney-Gen- 
eral, who  will  begin  a  suit  in  the  name  of  the  State  and 
have  the  Court  declare  the  corporate  existence  forfeited  and 
at  an  end. 

Statutes  of  1901,  page  632. 


CORPORATIONS  IN  CALIFORNIA.  517 

Section  933.— FAILURE  TO  ELECT  OFFICERS.— If 

a  corporation  does  organize  within  one  year,  but  neglects 
and  fails,  for  two  years  thereafter,  to  elect  a  President, 
Secretary,  Cashier,  or  any  necessary  officers,  and  to  trans- 
act in  regular  order  the  business  for  which  it  was  incor- 
porated, its  corporate  powers  cease  and  it  will  be  dissolved. 

Statutes  of  1901,  page  632. 

Section  934.— INCREASE  OF  CAPITAL  STOCK.— A 

corporation  may  increase  its  capital  stock,  at  any  time,  and 
the  law  provides  what  must  be  done  when  an  increase  of 
stock  is  desired.  To  increase  the  capital  stock,  a  meeting 
of  the  stockholders  must  be  called  for  that  purpose  by  a 
resolution  of  the  Directors.  A  notice  must  be  published  in 
a  newspaper,  once  a  week,  for  at  least  sixty  days,  stating 
that  the  object  of  the  meeting  is  to  vote  on  the  question  of 
increasing  the  capital  stock ;  the  amount  to  which  it  is  pro- 
posed to  increase  the  capital ;  and  the  time  and  place  of 
holding  the  meeting.  The  meeting  must  be  held  at  the 
principal  place  of  business  of  the  corporation  and  in  the 
building  where  the  Directors  usually  meet.  In  addition  to 
the  notice  by  publication,  the  Secretary  must  also  address 
a  copy  of  the  notice  to  each  of  the  stockholders  whose 
names  appear  on  the  company's  books,  at  his  place  of 
residence,  if  known ;  and  if  the  residence  of  the  stockholder 
is  not  known,  the  notice  must  be  addressed  to  him  at  the 
place  where  the  company  has  its  principal  place  of  busi- 
ness ;  and  the  notice  must  be  mailed  to  each  stockholder 
at  least  thirty  days  before  the  day  appointed  for  the  meet- 
ing. When  the  meeting  takes  place,  two-thirds  of  the 
subscribed  or  issued  stock  must  be  voted  in  favor  of  the 
proposition  to  increase  the  capital  stock,  in  order  to  carry  it. 
Statutes  of  1903,  page  347. 

Section  935.— DECREASE   OF   CAPITAL   STOCK.— 

The  capital  stock  of  a  corporation  may  be  decreased  in 
either  one  of  two  ways.     It  may  be  decreased  by  a  vote  of 


518  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

the  stockholders,  at  a  meeting  for  the  purpose,  held  in  the 
same  manner  and  after  similar  notice  as  a  meeting  for 
increase  of  stock.  The  notice  must  state  the  amount  of 
the  decrease  proposed,  and  the  proposed  decrease  must  be 
carried  by  a  vote  representing  at  least  two-thirds  of  the 
subscribed  or  issued  capital  stock.  The  law  provides  a  sec- 
ond mode  of  decreasing  the  capital  stock.  A  corporation 
may  diminish  its  capital  stock  by  the  unanimous  vote  of 
its  Board  of  Directors,  at  a  regular  meeting,  or  at  a  special 
meeting  called  for  that  purpose,  and  approved  by  the  writ- 
.ten  assent  of  stockholders  holding  two-thirds  of  the  sub- 
scribed or  issued  capital  stock.  The  written  assent  of  the 
stockholders  must  be  filed  with  the  Secretary.  The  Secre- 
tary, as  soon  as  the  resolution  of  the  Directors  is  passed 
providing  for  the  decrease,  must  send  a  copy  of  the  reso- 
lution to  each  stockholder  whose  name  appears  on  the  com- 
pany's books ;  he  must  send  by  mail,  postage  prepaid, 
addressed  to  the  known  place  of  residence  of  the  stock- 
holder, or  to  the  principal  place  of  business  of  the  corpora- 
tion, if  the  residence  of  the  stockholder  is  not  known ;  and 
the  copy  of  the  resolution  must  be  mailed  to  each  stock- 
holder at  least  thirty  days  before  the  certificate  mentioned 
in  the  following  section  is  made  and  filed.  Within  the 
thirty  days  any  stockholder  may  file  with  the  Secretary 
his  dissent  in  writing.  The  capital  stock  cannot  be  de- 
creased to  an  amount  less  than  the  indebtedness  of  the 
corporation. 

Statutes  of  1903,  page  348. 

Section  936.— CERTIFICATE  OF  INCREASE  OR 
DECREASE  OF  CAPITAL  STOCK.— If  capital  stock  is 
increased  or  decreased  by  a  vote  of  the  stockholders,  a 
certificate,  signed  and  verified  by  the  President  and  Sec- 
retary and  a  majority  of  the  Directors,  and  with  the  cor- 
porate seal  attached,  must  be  filed  in  the  office  of  the 
County  Clerk,  and  a  certified  copy  must  be  filed  in  the 
office  of  the  Secretary  of  State.     The  certificate  must  show 


CORPORATIONS  IN  CALIFORNIA.  519 

that  all  the  requirements  of  the  law  have  been  complied 
with ;  also,  the  amount  to  which  the  capital  stock  has  been 
increased  or  diminished ;  the  amount  of  stock  represented 
at  the  meeting,  and  the  total  vote  in  the  affirmative,  and 
the  total  vote  in  the  negative ;  and  the  total  number  of 
subscribed  or  issued  shares  of  capital  stock  of  the  corpo- 
ration. If  the  stock  is  decreased  by  a  vote  of  the  Directors, 
a  similar  certificate  must  be  filed,  which  must  show,  also, 
the  total  amount  of  stock  represented  by  the  written  assents 
and  the  written  dissents  filed  with  the  Secretary. 
Statutes  of  1903,  page  349. 

Section  937.— PAPER  IN  WHICH  NOTICES  MUST 
BE  PUBLISHED.— When  the  By-Laws  of  a  corporation 
prescribe  the  paper  in  which  notices  of  meetings  of  Direc- 
tors or  stockholders  are  to  be  published,  such  notices  must 
be  published  in  that  paper.  If  the  By-Laws  do  not  pre- 
scribe any  particular  paper,  the  Directors  may  select  the 
paper  in  which  notices  may  be  published. 

Section  938.— ASSESSMENT  OF  STOCK.— The  Di- 
rectors of  any  corporation  in  California,  after  one-fourth 
of  its  capital  stock  has  been  subscribed,  may,  for  the  pur- 
pose of  paying  expenses,  conducting  business,  or  paying 
debts,  levy  and  collect  assessments  upon  the  subscribed 
capital  stock. 

Civil  Code,  Section  33L 

Section  939.— AMOUNT  OF  ASSESSMENT.— The  law 
provides  generally  that  no  one  assessment  must  exceed  ten 
per  cent  of  the  capital  stock  named  in  the  Articles  of  Incor- 
poration. To  this  general  provision  there  are  three  excep- 
tions, viz. :  ( 1 )  If  the  whole  capital  of  a  corporation  has 
not  been  paid  up,  and  the  corporation  is  unable  to  meet 
its  liabilities  or  to  satisfy  the  claims  of  its  creditors,  the 
assessment  may  be  for  the  full  amount  unpaid  upon  the 
capital  stock;  or  if  a  less  amount  is  sufficient,  then  it  may 


520  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

be  for  such  a  percentage  as  will  raise  that  amount;  (2) 
The  Directors  of  railroad  corporations  may  assess  the  cap- 
ital stock  in  installments  of  not  more  than  ten  per  cent  per 
month,  unless  their  Articles  of  Incorporation  provide  other- 
wise ;  and  (3)  the  Directors  of  fire  or  marine  insurance  cor- 
porations may  assess  such  a  percentage  of  the  capital  stock 
as  they  deem  proper. 

Civil  Code,  Section  332. 

Section    940.— ORDER    LEVYING    ASSESSMENT.— 

The  assessment  must  be  levied  by  an  order  of  the  Board 
of  Directors.  Every  order  levying  an  assessment  must 
specify  the  amount  thereof,  to  whom,  and  where  payable ; 
fix  a  day,  subsequent  to  the  full  term  of  publication  of  the 
assessment  notice,  on  which  the  unpaid  assessments  shall 
be  delinquent,  not  less  than  thirty  nor  more  than  sixty  days 
from  the  time  of  making  the  order  levying  the  assessment ; 
and  a  day  for  the  sale  of  delinquent  stock,  not  less  than 
fifteen  nor  more  than  sixty  days  from  the  day  the  stock 
is  declared  delinquent. 

Civil  Code,  Section  334. 

Section  940a.— LEVY  OF  ASSESSMENT.— The  right  to 
levy  an  assessment  upon  the  capital  stock  of  a  corporation 
can  only  be  legally  exercised  in  the  manner  provided  by 
law  or  by  the  charter  of  the  corporation. 

Levy  Must  be  Made  at  Regular  or  Specially  Called  Meet- 
ing.— An  assessment  upon  the  capital  stock  of  a  corporation 
can  be  levied  only  at  a  regular  meeting  or  at  a  special  meet- 
ing regularly  called. 

Adjournment  of  Time  of  Holding  Regular  Meeting  by 
Minority  of  Directors  to  Future  Day  Not  a  Regular  Meet- 
ing— Assessment  Levied  at  Such  Meeting  Void. — An  as- 
sessment levied  by  a  majority  of  a  board  of  directors  of  a 
corporation  in  the  absence  and  without  the  knowledge  of 
the  minority  of  the  board,  at  a  time  to  which  the  regular 
monthly  meeting  of  the  board  had   been   adjourned   by  a 


CORPORATIONS  IN  CALIFORNIA.  521 

minority  of  the  board  present  on  the  day  of  the  regular 
meeting,  on  account  of  the  absence  of  a  quorum,  is  void,  as 
such  meeting  is  neither  a  regular  meeting  nor  a  specially 
called  meeting. 

Directors'  Meetings — Adjournment  by  Minority  Un- 
authorized.— There  is  no  provision  of  the  code  authorizing  a 
meeting  of  the  directors  of  a  corporation  to  be  adjourned 
by  a  minority,  and  such  act  is  invalid  under  the  express  pro- 
vision of  Section  305  of  the  Civil  Code. 

(Decided  by  the  California  District  Court  of  Appeals,  in 
the  case  of  Raisch  vs.  M.  K.  &  T.  Oil  Co.,  which  decision 
is  printed  in  California  Appellate  Decisions,  Volume  6,  No. 
284,  page  403.) 

Section  941.— NOTICE  OF  ASSESSMENT.— A  notice 
of  the  assessment  must  be  published  by  the  Secretary,  once 
a  week  for  four  successive  weeks,  in  a  newspaper  published 
at  the  principal  place  of  business,  if  there  be  one,  or,  if 
there  is  none,  then  the  notice  must  be  published  in  some 
other  newspaper  in  the  county.  If  the  principal  place  of 
business  is  in  one  county,  and  the  works  of  the  company 
in  another,  the  notice  must  be  published  in  both  counties 
for  the  same  length  of  time.  Also,  the  notice  must  either 
be  personally  served  upon  each  stockholder,  or  sent  through 
the  mail  addressed  to  him.  If  the  stockholder's  address 
is  known,  the  notice  must  be  mailed  there;  but  if  the 
address  is  not  known,  it  is  sufficient  to  mail  the  notice  to 
him  at  the  principal  place  of  business  of  the  corporation: 
Civil  Code,  Section  336. 

Section  942.— FORM  OF  NOTICE  OF  ASSESSMENT. 

— The  notice  of  assessment,  mentioned  in  the  preceding 
section,  must  be  substantially  in  the  following  form : — 

NOTICE  OF  ASSESSMENT. 
WILLITS  STATE  BANK.— Location  of  principal  place 
of  business,  Willits,  Mendocino  County,  State  of  Califor- 
nia.     Notice   is   hereby   given,   that   at   a   meeting  of  the 


522  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Directors,  held  on  the day  of ,  190. ., 

an  assessment  of  per  share  was 

levied  upon  the  capital  stock  of  the  corporation,  payable 
on  the  day  of ,  190. .,  to  the  Secre- 
tary of  said  Willits  State  Bank,  at  his  office  in  said  bank  in 
Willits,  Mendocino  County,  State  of  California.  Any  stock 
upon   which  this  assessment  shall  remain   unpaid  on  the 

day  of ,  190. .,  will  be  delinquent  and 

advertised  for  sale  at  public  auction,  and,  unless  payment 

is  made  before,  will  be  sold  on  the  day  of 

,  190..,  to  pay  the  delinquent  assessment, 

together  with  costs  of  advertising  and  expenses  of  sale. 


Secretary. 
Office  at  Willits  State  Bank,  Main  Street, 

Willits,  California. 

Section  943.— HOW  ASSESSMENT  MAY  BE  EN- 
FORCED.— The  law  provides  two  methods  for  the  enforce- 
ment of  the  liabilities  of  stockholders  to  the  corporation, 
by  reason  of  assessments  levied  upon  the  capital  stock — 
one  by  a  sale  of  the  stock,  for  the  delinquent  assessment; 
the  other  by  a  suit  against  the  stockholder  to  recover  from 
him  the  amount  of  the  assessment.  The  Board  of  Directors 
has  the  option  to  adopt  one  or  the  other  method  of  enforcing 
the  payment  of  an  assessment  on  stock  lawfully  levied. 
Civil  Code,  Section  349. 

Section  944.— NOTICE  OF  SALE.— If  any  portion  of 
the  assessment  remains  unpaid,  on  the  day  named  in  the 
notice  for  declaring  the  stock  delinquent,  the  Secretary 
must,  if  the  Directors  elect  to  have  the  stock  sold,  publish 
a  notice  of  sale  in  the  same  paper  in  which  the  delinquent 
notice  was  published.  The  notice,  when  published  in  a 
daily  paper,  must  be  published  for  ten  days,  excluding  Sun- 
days and  holidays,  previous  to  the  day  of  sale.  When  pub- 
lished in  a  weekly  paper,  it  must  be  published  in  each 
issue  for  two  weeks  previous  to  the  day  of  sale.  The  first 
publication  of  all  delinquent  sales  must  be  at  least  fifteen 
days  prior  to  the  day  of  sale.     The  notice  must  specify 


CORPORATIONS  IN  CALIFORNIA.  523 

every  certificate  of  stock,  the  number  of  shares  it  repre- 
sents, and  the  amount  due  thereon,  except  where  certifi- 
cates may  not  have  been  issued  to  parties  entitled  thereto, 
in  which  case  the  number  of  shares  and  amount  due  thereon, 
together  with  the  fact  that  the  certificates  for  such  shares 
have  not  been  issued,  must  be  stated. 
Civil  Code,  Sections  338,  339. 

Section  945.— FORM  OF  NOTICE  OF  SALE.— The 
following  is  a  form  of  the  notice  of  sale  mentioned  in  the 
preceding  Section : — • 

NOTICE  OF  SALE  OF  STOCK  FOR  DELINQUENT 
ASSESSMENT. 
WILLITS  STATE  BANK.— Location  of  principal  place 
of  business,  Willits,  Mendocino  County,  State  of  Califor- 
nia. Notice  is  hereby  given,  that  there  is  delinquent  upon 
the  following  described  stock  of  the  corporation,  on  account 

of  assessment  levied  on  the day  of , 

190..,  the  several  amounts  set  opposite  the  names  of  the 
respective  shareholders,  as  follows :  (Here  insert  names, 
number  of  certificate,  number  of  shares,  and  amount.)  And 
in  accordance  with  law,  and  an  order  of  the  Board  of  Direc- 
tors made  on  the day  of ,  190. .,  so 

many  shares  of  each  parcel  of  such  stock  as  may  be  neces- 
sary will  be  sold,  at  public  auction,  at  the  office  of  the  Secre- 
tary of  said  corporation,  at  the  Willits  State  Bank,  Main 
Street,  Willits,  Mendocino  County,  State  of  California,  on 

the day  of ,  190. .,  at  10  o'clock  A.  M. 

of  that  day,  to  pay  delinquent  assessments  thereon,  together 
with  costs  of  advertising  and  expenses  of  the  sale. 


Secretary. 
Office  at  Willits  State  Bank,  Main  Street,  Willits,  Mendo- 
cino County,  State  of  California. 

Section  946.— WHO  ARE  LIABLE  ON  ASSESS- 
MENTS.— For  the  purpose  of  ascertaining  those  who  are 
liable  to  it  for  the  amount  of  an  assessment,  a  corporation 
can  look  only  to  the  list  of  stockholders  as  their  names  are 
registered  upon  its  books.  Where  an  assignment  of  stock 
is  made  after  the  levy  of  an  assessment,  but  no  formal 


524  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

transfer  is  made  on  the  books  of  the  company,  the  assignor 
is  still  liable  on  the  assessment.  Where  stock  has  been 
assigned,  and  a  transfer  of  the  stock  has  been  duly  made  on 
the  books  of  the  company,  the  assignee  becomes  liable  on 
assessments. 

Section  947.— EXTENSION  OF  TIME  FOR  PAY- 
MENT AND  SALE.— The  dates  fixed  in  any  notice  of 
assessment  or  notice  of  delinquent  sale  may  be  extended 
from  time  to  time  for  not  more  than  thirty  days,  by  order 
of  the  Directors,  entered  on  the  records  of  the  corporation ; 
but  no  order  extending  the  time  for  the  performance  of 
any  act  specified  in  any  notice  is  effectual  unless  notice 
of  such  extension  or  postponement  is  appended  to  and  pub- 
lished with  the  notice  to  which  the  order  relates. 
Civil  Code,  Section  345. 

Section  948.— SALE  OF  STOCK  FOR  ASSESSMENT. 
— By  the  publication  of  the  notice,  the  corporation  acquires 
jurisdiction  to  sell  and  convey  a  perfect  title  to  all  of  the 
stock  described  in  the  notice  of  sale  upon  which  any  por- 
tion of  the  assessment  or  cost  of  advertising  remains 
unpaid  at  the  hour  appointed  for  the  sale,  but  must  sell 
no  more  of  such  stock  than  is  necessary  to  pay  the  assess- 
ments due  and  costs  of  sale.  On  the  day,  at  the  place,  and 
at  .the  time  appointed  in  the  notice  of  sale,  the  Secretary 
must,  unless  otherwise  ordered  by  the  Directors,  sell  or 
cause  to  be  sold  at  public  auction,  to  the  highest  bidder 
for  cash,  so  many  shares  of  each  parcel  of  the  described 
stock  as  may  be  necessary  to  pay  the  assessments  and 
charges  thereon,  according  to  the  terms  of  sale ;  if  pay- 
ment is  made  before  the  time  fixed  for  sale,  the  party  paying 
is  only  required  to  pay  the  actual  cost  of  advertising,  in 
addition  to  the  assessments.  The  person  offering  at  such 
sale  to  pay  the  assessment  and  costs  for  the  smallest  num- 
ber of  shares  or  fraction  of  a  share  is  the  highest  bidder, 
and  the  stock  purchased  must  be  transferred  to  him  on  the 


CORPORATIONS  IN  CALIFORNIA. 


525 


stock  books  of  the  corporation,  on  payment  of  the  assess- 
ment and  costs. 

Civil  Code,  Sections  340,  341,  342. 

Section  949.— PURCHASE  OF  DELINQUENT  STOCK 
BY  THE  CORPORATION.— If,  at  the  sale  of  stock,  no 
bidder  offers  the  amount  of  the  assessments  and  charges 
due,  the  same  may  be  bid  in  and  purchased  by  the  corpo- 
ration, through  the  Secretary,  President,  or  any  Director,  at 
the  amount  of  the  assessments,  costs,  and  charges  due; 
and  the  amount  of  the  assessments,  costs,  and  charges 
must  be  credited  as  paid  in  full  on  the  books  of  the  cor- 
poration, and  entry  of  the  transfer  of  the  stock  of  the 
corporation  must  be  made  on  the  books.  While  the  stock 
remains  the  property  of  the  corporation,  it  is  not  assessable, 
nor  must  any  dividends  be  declared  thereon ;  but  all  assess- 
ments and  dividends  must  be  apportioned  upon  the  stock 
held  by  the  stockholders  of  the  corporation.  All  purchases 
of  its  own  stock  made  by  any  corporation  vest  the  legal 
title  to  the  stock  in  the  corporation;  and  the  stock  so 
purchased  is  held  subject  to  the  control  of  the  stockholders, 
who  may  make  such  disposition  of  the  same  as  they  deem 
fit,  in  accordance  with  the  By-Laws  of  the  corporation  or 
the  vote  of  a  majority  of  all  the  remaining  shares.  When- 
ever any  portion  of  the  capital  stock  of  a  corporation  is 
held  by  the  corporation  by  purchase,  a  majority  of  the  re- 
maining shares  is  a  majority  of  the  stock,  for  all  purposes 
of  election,  or  voting  on  any  question  at  a  stockholders' 
meeting. 

Civil  Code,  Sections  343,  344. 

Section  950.— SUIT  TO  RECOVER  AMOUNT  OF 
ASSESSMENT. — On  the  day  specified  for  declaring  the 
stock  delinquent,  or  at  any  subsequent  time  before  the  sale 
of  the  delinquent  stock,  the  Board  of  Directors  may  order 
all  such  proceedings  stopped,  and  may  elect  to  sue  the 
delinquent     stockholders     for     their     assessments.      The 


526  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Stockholder  is  liable  in  the  suit  for  the  amount  of  the  assess- 
ment, and  for  the  costs  and  expenses  incurred  by  the  cor- 
poration in  trying  to  collect  it. 

Civil  Code,  Section  349. 

Section  951.— LIEN  FOR  ASSESSMENT.— After  an 
assessment  has  been  made,  a  corporation  has  a  lien  for  the 
payment  of  the  assessment,  which  is  not  affected  by  the  issu- 
ance of  a  new  certificate  and  a  transfer  of  the  shares.  The 
lien  is  upon  the  shares,  and  not  upon  the  certificate.  When 
an  old  certificate  is  surrendered,  and  a  new  certificate  is 
issued,  the  new  certificate  represents  the  same  shares;  but 
the  shares  themselves  remain  subject  to  any  lien  the  corpo- 
ration may  have  upon  them,  and  the  new  owner  takes  sub- 
ject to  such  lien.  The  identity  of  the  stock  is  not  affected 
by  the  transfer.  The  keeping  of  a  stock  book,  in  which 
the  original  issue  and  all  subsequent  transfers  must  be 
entered,  enables  the  holder  or  purchaser  to  trace  his  shares 
back  to  the  original  issue  by  the  numbers  of  the  different 
certificates,  and  thus  identify  the  shares  upon  which  any 
assessment  has  been  made,  and  enables  him  to  ascertain 
with  certainty,  in  connection  with  the  other  records  of  the 
corporation  relating  to  assessments  and  delinquent  sales, 
whether  his  shares  are  free  from  liens  or  liability  in  favor 
of  the  corporation ;  and  in  the  same  manner  enables  the 
corporation  to  enforce  its  delinquent  assessment  upon  the 
shares  liable  therefor,  no  matter  how  many  transfers  have 
been  made  subsequent  to  the  assessment;  each  transferee 
taking  the  legal  title,  but  subject  to  the  assessment,  just 
as  the  grantee  of  the  legal  title  to  land  takes  it  subject  to 
all  valid  recorded  liens.  (Decided  by  the  Supreme  Court 
in  the  case  of  Craig  vs.  Hesperia  Land  and  Water  Company, 
which  decision  is  printed  in  Volume  113  of  the  California 
Reports,  page  7.) 

Section  952.— BY-LAWS  OF  CORPORATION.— Every 

corporation  formed  under  the  laws  of  California  must, 
within  one   month   after  filing  Articles   of   Incorporation, 


CORPORATIONS  IN  CALIFORNIA.  527 

adopt  By-Laws  for  the  government  of  the  corporation. 
The  By-Laws  adopted  must  not  be  inconsistent  with  the 
Constitution  and  laws  of  the  State. 

Section  953.— HOW  BY-LAWS  ADOPTED.— The  as- 
sent of  stockholders,  representing  a  majority  of  all  the 
subscribed  capital  stock,  or  a  majority  of  the  members, 
if  there  be  no  capital  stock,  is  necessary  to  adopt  By-Laws, 
if  they  are  adopted  at  a  meeting  called  for  that  purpose. 
By-Laws  may  also  be  adopted,  without  a  meeting  for  that 
purpose,  by  the  written  assent  of  the  holders  of  two-thirds 
of  the  stock,  or  by  the  written  assent  of  two-thirds  of  the 
members,  if  there  is  no  capital  stock.  If  a  meeting  of 
stockholders  is  called  for  the  purpose  of  adopting  By-Laws, 
notice  must  be  given  by  publication  in  a  newspaper  for 
two  weeks,  by  order  of  the  acting  President. 
Civil  Code,  Section  30L 

Section  954.— WHAT     BY-LAWS     MAY     PROVIDE 

FOR. — A  corporation  may,  by  its  By-Laws,  provide  for  the 
following  things  .  (1)  The  time,  place,  and  manner  of  calling 
and  conducting  its  meetings,  and  may  dispense  with  notice 
of  all  regular  meetings  of  the  stockholders  or  Directors; 
(2)  The  number  of  stockholders  or  members  constituting 
a  quorum;  (3)  The  mode  of  voting  by  proxy;  (4)  The 
qualifications  and  duties  of  Directors,  the  time  of  their 
annual  election,  and  the  mode  and  manner  of  giving  notice 
of  such  election;  (5)  The  compensation  and  duties  of  of- 
ficers ;  (6)  The  manner  of  election  and  the  term  of  office 
of  all  officers  other  than  the  Directors;  (7)  Suitable  pen- 
alties may  be  provided  for  the  violation  of  the  By-Laws, 
not  exceeding  $100  for  any  one  offense ;  (8)  The  amount 
of  stock  to  be  owned  by  a  Director;  (9)  For  the  filling 
of  vacancies  on  the  Board  of  Directors;  (10)  For  the  issu- 
ing of  certificates  of  stock  before  full  payment  therefor; 
(11)  For  the  disposal  of  stock  owned  by  the  corporation; 
and,    (12)  The    By-Laws    may   specify   the   newspaper   in 


528  BUSINESS  LAWS  FOE  BUSINESS   MEN. 

which    all    notices    of    the    meetings    of    stockholders    or 
Directors,  when  notice  is  necessary,  shall  be  published. 
Civil  Code,  Sections  301,  305,  308,  323,  344. 

Section  955.— BOOK  OF  BY-LAWS.— The  law  provides 
that  all  By-Laws  adopted  must  be  certified  by  a  majority 
of  the  Directors  and  Secretary  of  the  corporation,  and  copied 
in  a  legible  hand,  in  a  book  kept  in  the  office  of  the  cor- 
poration, to  be  known  as  the  "Book  of  By-Laws,"  and  no 
By-Law  shall  take  effect  until  so  copied,  and  the  book  shall 
then  be  opened  to  the  inspection  of  the  public  during  office 
hours  of  each  day  except  holidays. 
Civil  Code,  Section  304. 

Section    956.— AMENDMENT    OF    BY-LAWS.— The 

By-Laws  can  be  amended  by  a  vote  of  the  stockholders 
at  the  annual  meeting,  or  at  a  special  meeting  called  for 
that  purpose.  There  must  be  a  vote  representing  two- 
thirds  of  the  subscribed  stock.  The  By-Laws  may  also  be 
amended,  without  a  meeting,  by  the  written  assent  of  the 
holders  of  two-thirds  of  the  stock,  or  two-thirds  of  the  mem- 
bers if  there  is  no  capital  stock. 

Civil  Code,  Section  304;  Statutes  of  1905,  page  557. 

Section   957.— REPEALING   OLD   AND   ADOPTING 

NEW  BY-LAWS.— Old  By-Laws  may  be  repealed  abso- 
lutely, and  new  By-Laws  adopted  in  their  place,  in  the 
same  manner  as  amendments  are  made,  stated  in  Section 
956. 

Section  958.— RECORD  OF  AMENDMENTS.— The 
law  provides  that,  "whenever  any  amendment  or  new  By- 
Law  is  adopted,  it  shall  be  copied  in  the  Book  of  By-Laws 
with  the  original  By-Laws,  and  immediately  after  them, 
and  shall  not  take  eflfect  until  so  copied.  If  any  By-Law 
be  repealed,  the  fact  of  repeal,  with  the  date  of  the  meeting 


CORPORATIONS  IN  CiUjIFORNIA.  529 

at  which  the  repeal  was  enacted,  or  written  assent  was 
filed,  shall  be  stated  in  said  book,  and  until  so  stated  the 
repeal  shall  not  take  effect." 

Civil  Code,  Section  304. 

Section   959.— THE   BOARD   OF   DIRECTORS.— The 

corporate  powers,  business,  and  property  of  corporations 
must  be  exercised,  conducted,  and  controlled  by  a  Board  of 
Directors. 

Section   960.— NUMBER   OF   DIRECTORS.— The  law 

is,  that  the  number  of  Directors  cannot  be  less  than  three, 
but  may  be  any  number  more  than  three.  The  number  of 
Directors  may  be  increased  to  more  than  three  without 
limit,  to  as  many  as  may  be  desired  at  any  time  after  articles 
of  incorporation  have  been  filed,  by  a  vote  of  the  majority 
of  the  stockholders  of  the  corporation ;  and  if  the  corpora- 
tion has  been  formed  with  more  than  three  Directors,  a 
majority  of  the  stockholders  may  vote  to  decrease  the  di- 
rectors to  any  number  not  less  than  three.  The  increase  or 
decrease  of  the  number  of  Directors  must  be  at  a  meeting 
of  the  stockholders  called  for  that  purpose.  When  the 
number  of  Directors  has  been  increased  or  decreased,  a  cer- 
tificate stating  that  fact  must  be  filed  in  the  same  manner  as 
articles  of  incorporation  were  filed. 

Act  of  the  Legislature,  in  eflfect  May  18,  1907. 

Section  961.— QUALIFICATION  OF  DIRECTORS.— 

A  majority  of  the  Directors  must  be  citizens  of  California. 
Directors  of  corporations  for  profit  must  be  holders  of  its 
stock  to  an  amount  fixed  by  the  By-Laws  of  the  corpora- 
tion ;  Directors  of  all  other  corporations  must  be  members 
thereof. 

Statutes  of  1901,  page  308.     / 

Section  962.— DIRECTORS  FOR  THE  FIRST  YEAR. 
— The  Directors  to  serve  for  the  first  year,  or  until  the 
time  fixed  for  the  election  of  Directors,  are  designated  in 


530  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  Articles  of  Incorporation;  and  the  persons  named  in 
the  Articles  of  Incorporation,  upon  the  organization  of  a 
corporation,  will  serve  until  their  successors  are  regularly 
elected. 

Section     963.— ELECTION     OF     DIRECTORS.— The 

Directors  of  a  corporation  must  be  elected  annually  by 
the  stockholders  or  members,  and  if  no  provision  is  made 
in  the  By-Laws  for  the  time  of  election,  the  election  must 
be  held  on  the  first  Tuesday  in  June.  There  must  be  a 
majority  of  the  subscribed  capital  stock,  or  of  the  members 
where  there  is  no  capital  stock  represented  at  the  meeting 
for  the  election  of  Directors,  either  in  person  or  by  proxy 
in  writing.  The  election  must  be  by  ballot,  and  every 
stockholder  has  the  right  to  vote  in  person  or  by  proxy 
the  number  of  shares  standing  in  his  name,  for  as  many 
persons  as  there  are  Directors  to  be  elected,  or  he  may 
cumulate  his  shares  and  give  one  candidate  as  many  votes 
as  the  number  of  Directors  multiplied  by  the  number  of  his 
shares  of  stock  shall  equal ;  or  the  stockholder  may  dis- 
tribute his  shares  on  the  same  principle  among  as  many 
candidates  as  he  shall  think  fit.  These  provisions  of  the 
law  to  apply  to  all  corporations  doing  business  in  this  State, 
domestic  or  foreign.  The  Director  receiving  the  highest 
number  of  votes  shall  be  declared  elected.  In  corporations 
having  no  capital  stock,  each  member  of  the  corporation 
may  cast  as  •  many  votes  for  one  Director  as  there  are 
Directors  to  be  elected,  or  he  may  distribute  them  among 
any  or  all  the  candidates. 

Civil  Code,   Sections  302,  312;  Statutes  of  1903, 
page  253. 

Section   963a.— NOTICE   OF   MEETINGS.— Notice   of 

meetings  of  the  stockholders  to  elect  directors  must  be  given, 
by  the  secretary,  unless  all  of  the  stockholders  waive  such 
notice  in  writing.  When  all  the  stockholders  or  members 
of  a  corporation  are  present  at  any  meeting,  however  called 


CORPORATIONS  IN  CALIFORNIA.  531 

or  notified,  and  sign  a  written  consent  thereto  on  the  records 
of  such  meetings,  or  if  those  not  present  sign  in  writing  a 
waiver  of  notice  of  such  meeting,  which  waiver  is  presented 
and  made  a  part  of  the  records  of  such  meeting,  the  doings 
of  such  meeting  are  as  valid  as  if  had  at  a  meeting  legally 
called  and  noticed. 

Act  of  the  Legislature,  approved  February  22,  1909. 

Section  964.— WHO  MAY  VOTE  AT  ELECTION  OF 
DIRECTORS. — To  entitle  a  person  to  vote  at  the  election 
of  Directors,  he  must  be  a  bona  fide  stockholder,  having 
stock  in  his  own  name  on  the  stock  books  of  the  corpora- 
tion at  least  ten  days  before  the  election.  It  is  made  a 
requisite  of  the  right  to  vote  that  the  voter  shall  not  only 
be  registered  as  a  stockholder,  but  that  he  shall  have  been 
so  registered  for  at  least  ten  days  prior  to  the  election,  and 
that  he  shall  also  be  a  bona  fide  stockholder  at  the  time 
of  the  election.  The  voter  must  be  either  the  owner  of 
the  stock,  or  have  some  other  interest  in  it,  in  order  to 
be  a  bona  fide  stockholder.  Therefore,  one  in  whose  name 
stock  has  been  registered  upon  the  books  of  the  corpora- 
tion, but  who  has  never  had  any  interest  in  the  stock,  and 
is  only  a  dummy  for  the  real  owner,  and  when  the  change 
on  the  books  was  made  for  the  purpose  of  enabling  the 
real  owner  to  avoid  his  liabilities,  is  not  a  bona  fide  stock- 
holder, within  the  meaning  of  the  law,  and  should  not  be 
allowed  to  vote  at  an  election  of  Directors.  (Decided  by 
the  Supreme  Court  in  the  case  of  Smith  vs.  S.  F.  and  N.  P. 
Railway  Company,  which  decision  is  printed  in  Volume  115 
of  the  California  Reports,  page  584.) 
Civil  Code,  Sections  307,  312. 

Section  965.— WHO  MAY  VOTE  PLEDGED  STOCK. 

— One  may  be,  in  several  supposed  cases,  a  bona  fide  stock- 
holder without  being  the  owner  of  the  stock.  When  the 
owner  of  stock  pledges  it  as  security  for  a  debt,  the  creditor 
in  whose  hands  it  is  placed  has  the  right  to  have  the  stock 


632  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

transferred  to  his  own  name  upon  the  books  of  the  cor- 
poration, and  if  he  does  so  ten  days  before  the  election, 
or  other  occasion  when  a  vote  is  to  be  taken  upon  any 
question,  he,  and  not  the  real  owner,  will  have  the  right 
to  vote  the  stock.  True,  he  is  not  the  owner,  but  by  his 
pledge  he  has  acquired  such  an  interest  in  the  stock  and 
its  proceeds  as  makes  him  a  bona  fide  stockholder,  within 
the  meaning  of  the  law.  If,  after  the  stock  is  pledged, 
it  is  allowed  to  remain  upon  the  books  of  the  corporation 
in  the  name  of  the  real  owner,  he,  and  not  the  pledgee, 
will  have  the  right  to  vote  the  stock.  (Decided  by  the 
Supreme  Court  in  the  case  of  Smith  vs.  S.  F.  and  N.  P. 
Railway  Company,  which  decision  is  printed  in  Volume  115 
of  the  California  Reports,  page  584.) 

Section  966.— WHO  MAY  VOTE  STOCK  IN  HANDS 
OF  TRUSTEE.— Where  stock  is  held  by  a  Trustee,  he  is 
entitled  to  vote  the  stock,  if  it  has  been  transferred  to  his 
name  on  the  books  of  the  corporation  ten  days  before  the 
election. 

Section  967.— WHO  MAY  VOTE  STOCK  IN  HANDS 
OF   ADMINISTRATOR   OR    EXECUTOR.— When   the 

owner  or  pledgee  is  dead,  he  must  be  succeeded  by  his 
personal  representative,  that  is,  by  his  executor  or  adminis- 
trator. In  such  case,  the  administrator  or  executor  will 
have  the  right  to  have  the  stock  transferred  on  the  books 
of  the  corporation  to  him,  and  will  be  entitled  to  vote  the 
stock.  In  the  case  of  a  Trustee  who  dies,  the  law  will 
not  allow  the  trust  to  die  with  him,  but  will  proceed  to 
appoint  another  Trustee  to  succeed  him,  and  in  this  case 
the  succeeding  Trustee  will  be  entitled  to  have  the  stock 
transferred  to  him,  and  may  vote  it. 

Section  968.— WHO  MAY  VOTE  STOCK  BELONG- 
ING TO  MINOR. — The  guardian  of  a  minor,  the  ownei 
of  stock  in  a  corporation,  is  entitled  to  vote  it. 


CORPORATIONS  IN  CALIFORNIA.  533 

Section  969.— WHO  MAY  VOTE  STOCK  BELONG- 
ING TO  INSANE  PERSON.— The  guardian  of  the  estate 
of  an  insane  person,  the  owner  of  stock  in  a  corporation^ 
is  entitled  to  vote  it. 

Section  970.— VOTING  BY  PROXY.— A  stockholder 
may  be  represented  at  all  elections  by  proxy.  He  may 
select  any  one  he  pleases  as  his  proxy,  to  vote  his  stock, 
and  the  person  selected  by  him  need  not  himself  be  a  stock- 
holder. A  corporation  has  no  power  to  restrict  the  right 
of  voting  by  proxy  to  certain  persons,  or  to  control  their 
selection  by  the  stockholder  in  any  way,  or  to  curtail  in  any 
other  respect  the  right  to  vote  by  proxy.  There  was  for  a 
long  time  in  California  a  custom  among  banking  corpora- 
tions to  have  a  By-Law  providing  that  no  person  not  a 
stockholder  would  be  allowed  to  vote  as  a  proxy,  but  the 
Supreme  Court  has  declared  such  a  By-Law  invalid,  upon 
the  ground  that  a  corporation  has  no  power  to  make  or 
enforce  it.  The  law  places  no  restriction  whatever  upon 
the  stockholder  as  to  the  person  he  shall  be  at  liberty  to 
select  to  act  under  his  proxy ;  and  a  corporation  has  no 
power  to  either  qualify  or  limit  the  right  to  vote  by  proxy. 
(Decided  by  the  Supreme  Court  in  the  case  of  People's 
Home  Savings  Bank  vs.  Superior  Court,  which  decision  is 
printed  in  Volume  104  of  the  California  Reports,  page  649.) 
A  new  section  has  been  added  to  the  Civil  Code  (in  force 
April  27,  1905),  regulating  the  giving  and  use  of  proxies. 
The  law  provides  that  every  proxy  must  be  executed  in 
writing  by  the  stockholder  himself,  or  by  his  duly  author- 
ized attorney.  No  proxy  given  or  made  prior  to  February 
27,  1905,  will  be  valid  after  the  expiration  of  eleven  months 
from  said  date,  unless  the  length  of  time  for  which  it  is  to 
continue  is  specified  in  the  proxy  itself;  and  the  time,  when 
specified,  must  be  for  some  limited  period,  in  no  case  to 
exceed  seven  years  from  the  date  of  the  proxy.  A  proxy 
hereafter  given  is  valid  for  eleven  months  after  its  date, 
unless  the  time,  not  exceeding  seven  years,  is  specified  in  it. 


534  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Every  proxy  is  revocable  at  the  pleasure  of  the  person 
executing  it.  (Act  of  the  Legislature,  approved  February 
27,  1905.) 

Civil  Code,  Section  312;  Statutes  of  1905,  page  22. 

Section  971.— ORGANIZATION  OF  BOARD  OF  DI- 
RECTORS.— Immediately  after  their  election,  the  Direct- 
ors must  organize  by  the  election  of  a  President,  a  Secre- 
tary, and  a  Treasurer. 

Civil  Code,  Section  308. 

Section  972.— DUTIES  OF  PRESIDENT,  SECRE- 
TARY, AND  TREASURER.— The  duties  of  the  Presi- 
dent, the  Secretary,  and  the  Treasurer  may  be  prescribed 
by  the  corporation  in  its  By-Laws.  They  may  be  required 
to  perform  any  duty  consistent  with  the  objects  of  the  cor- 
poration and  not  inconsistent  with  the  laws  of  the  State. 

Section  973.— OTHER  OFFICERS.— A  corporation  may 
appoint  other  officers  than  those  named  by  the  law,  and 
prescribe  what  their  duties  shall  be.  Such  officers  may  be 
provided  for  in  the  By-Laws,  and  appointed  by  the  Board 
of  Directors. 

Section  974.— QUORUM  OF  DIRECTORS.— A  major- 
ity of  the  Board  of  Directors  constitutes  a  quorum  for  the 
transaction  of  business.  Unless  a  quorum  is  present  and 
acting,  no  business  performed,  or  act  done,  is  valid,  as 
against  the  corporation.  No  legal  quorum  of  a  Board  of 
Directors  is  present  when  action  is  attempted  to  be  taken 
on  a  matter  as  to  which  one  of  the  Directors  necessary  to 
make  the  quorum  is  interested ;  and  resolutions  passed  at 
such  a  meeting  cannot  be  ratified  by  the  stockholders. 
Civil  Code,  Section  305. 

Section  975.— DIRECTOR  CANNOT  VOTE  ON  MAT- 
TER IN  WHICH  HE  IS  INTERESTED.— A  Director 
of  a  corporation  cannot  legally  vote  or  act  upon  any  matter 


CORPORATIONS  IN  CALIFORNIA.  535 

in  which  he  is  financially  interested  adversely  to  the  cor- 
poration.    By    virtue    of    his    position,    he    is    disqualified 
from  voting  or  in  any  mode  acting  in  his  official  capacity  as 
a   Director,   for  the  purpose  of  creating  an   obligation   in 
his   own   favor.     So   strictly   is   this   principle   adhered  to 
by  the  courts,  that  no  question   is  allowed  to  be  raised 
as  to  the  fairness  or  unfairness  of  the  contract  so  entered 
into.    A  Director  must  not  participate  in  any  act  in  which 
his  personal  interest  is  antagonistic  to  that  of  the  corpora- 
tion.    Being  interested  in  the  subject-matter,  the  law  does 
not  allow  him,  as  a  Director,  to  deal  with  himself,  and 
thus  be  subjected  to  the  temptation  to  advance  his  own 
interests.     The   Supreme    Court   of   California   had   under 
consideration  a  case  where  a  Director  named  Wells  formed 
a  part  of  a  quorum,  at   a   meeting  of  the   Board,   which 
voted  the  execution  of  a  mortgage  on  the  property  of  the 
corporation  to  him ;  and  the  Court  held  that  the  mortgage 
was  invalid,  saying:    ''The  same  rules  which  preclude  an 
interested  Director  from  uniting  with  other  Directors  in 
the  creation  of  an  obligation  in  favor  of  himself  by  his 
vote  forbid  him  from  uniting  with  them  in  creating  such 
obligation  by  any  act  or  exercise  of  his  official  position; 
and  a  meeting  at  which  there  is  not  a  majority  of  the  Di- 
rectors, exclusive  of  such  interested  Director,  is  not  a  com- 
petent Board  for  the  transaction  of  any  corporate  business. 
By  reason  of  the  disqualification  of  Wells  from  taking  any 
part  in  passing  the  resolution  for  executing  the  note  and 
mortgage  to  himself,  he  could  neither  vote  in  favor  of  the 
resolution,  nor  by  his  presence  help  to  create  a  quorum  by 
which  the  other  two  Directors  could  adopt  it.    For  the  pur- 
pose of  any  action  upon  this  resolution,  he  was  as  much  a 
stranger  to  the  Board  as  if  he  had  never  been  elected  a  Di- 
rector; and,  although  he  may  have  been  physically  present 
in  the  room  with  the  other  two  Directors,  he  was  not  for 
that  purpose  a  competent  part  of  the  Board,  any  more  than 
would  have  been  any  other  bystander,  and  there  was  not, 
therefore,  a  quorum  of  the  Board  'present  and  acting'  at 


536  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  time  the  resolution  was  adopted."  (Decided  by  the 
Supreme  Court  in  the  case  of  Curtin  vs.  Salmon  River  Hy- 
draulic Gold  Mining  Company,  which  decision  is  printed  in 
Volume  130  of  the  California  Reports,  page  345.) 

Section  976.— REGULAR  AND  SPECIAL  MEET- 
INGS.— The  time  of  holding  the  meetings  of  the  Board 
of  Directors  may  be  fixed  in  the  By-Laws,  and  the  By- 
Laws  may  provide  that  no  notice  be  given  of  regular 
meetings.  Where  a  special  meeting  is  called,  for  any  pur- 
pose, all  of  the  Directors  must  be  notified  by  the  Secretary 
in  the  proper  manner.  If  the  meeting  is  special,  and  the 
Directors  are  not  all  notified,  the  meeting  is  not  duly  as- 
sembled, and  its  action  does  not  bind  the  corporation  as  a 
valid  corporate  act. 

Section  977.— PUBLICITY  CANNOT  MAKE  ILLE- 
GAL ACT  OF  DIRECTORS  VALID.— The  publicity 
alone  of  an  illegal  and  unauthorized  act  of  the  Directors 
of  a  corporation  does  not  make  it  valid ;  and  Directors 
charged  with  doing  an  illegal  act  cannot  defend  it  by  saying 
that  their  act  was  open,  and  not  secret. 

Section  978.— VACANCY  IN  BOARD  OF  DIRECT- 
ORS.— The  By-Laws  of  a  corporation  may  provide  the 
manner  in  which  a  vacancy  in  the  Board  of  Directors  shall 
be  filled.  If  the  By-Laws  make  no  provision  for  filling  a 
vacancy,  the  Board  of  Directors  must  appoint  a  member 
to  fill  the  vacancy. 

Civil  Code,  Section  305. 

Section  979.— CAN  A  CORPORATION  PERFORM 
CORPORATE  ACTS,  SUCH  AS  THE  MORTGAGING 
OF  ITS  REAL  PROPERTY,  WHILE  THERE  IS  A 
VACANCY   IN   ITS   BOARD   OF   DIRECTORS?— This 

question  was  a  new  one  in  the  United  States  prior  to  the 
year  1899.  In  that  year  the  Supreme  Court  of  California 
made  a  decision  in  a  case  where  this  question  was  directly 


CORPORATIONS  IN  CALIFORNIA.  537 

raised,  (where  there  was  a  vacancy  in  a  Board  of  five,  and 
the  remaining  four  members,  without  filling  the  vacancy, 
undertook  to  authorize  a  mortgage  of  the  corporation's  real 
estate),  holding  that  a  vacancy  in  the  Board  does  not  pre- 
vent it  from  acting  so  as  to  bind  the  corporation,  if  there 
is  a  majority  of  a  full  Board  remaining.  Chief  Justice 
Beatty,  giving  the  decision  of  the  Court,  said  on  this  sub- 
ject: "The  By-Laws  of  this  corporation,  and,  I  suppose, 
its  Articles  of  Incorporation,  provided  for  a  Board  of  five 
Directors,  and  the  question  is  whether  during  a  vacancy 
in  one  of  these  directorships  the  four  remaining  Directors 
could  lawfully  assemble  for  the  transaction  of  any  business 
except  the  filling  of  such  vacancy.  Counsel  have  not  cited 
any  case  decided  in  this  State  or  any  other  in  the  United 
States  in  which  this  question  has  been  directly  decided. 
It  is  no  doubt  true  that  Directors  owe  to  their  constituents 
the  duty  of  keeping  the  Board  full,  by  promptly  filling 
vacancies  as  they  occur ;  and  this  for  the  reason  that  share- 
holders are  entitled  to  the  benefit  of  the  experience  and 
advice  of  all  the  members  of  a  full  Board  in  the  trans- 
action of  all  its  business.  When  the  Directors  violate  this 
duty,  there  may  be  sound  reasons  for  holding  that  they 
should  not  be  allowed  to  take  any  advantage,  as  against 
the  shareholders,  of  acts  or  resolutions  passed  when  a  full 
Board  was  not  in  existence.  But  when  the  corporation  is 
dealing  with  a  stranger,  who,  acting  in  good  faith  and  in 
ignorance  of  the  existence  of  a  vacancy  in  the  Board  of 
Directors,  parts  with  his  property  on  the  faith  of  what  he 
is  induced  to  believe  is  a  valid  corporate  obligation,  the 
case  is  certainly  very  diflFerent  in  its  substantial  merits. 
The  votes  of  a  majority  of  a  full  Board  may  authorize  a 
corporate  act,  although  there  may  be  a  vacancy  in  the 
Board."  (Decided  by  the  Supreme  Court  in  the  case  of 
Porter  vs.  Lassen  County  Land  and  Cattle  Company,  which 
decision  is  printed  in  Volume  127  of  the  California  Reports, 
page  661.) 


538  BUSINESS  IjAws  for  business  men. 

Section  980.— SERVICES  OF  DIRECTOR  OUTSIDE 
OF  HIS  DUTIES  AS  SUCH.— Where  a  Director  of  a  cor- 
poration performs  services  as  its  manager,  or  in  any  other 
legitimate  way,  not  pertaining  to  his  duties  as  Director, 
he  is  entitled  to  recover  from  the  corporation  the  reasonable 
value  of  such  services,  though  no  rate  of  compensation  was 
fixed  by  the  Board  of  Directors  prior  to  performance  of  the 
services.  (Decided  by  the  Supreme  Court  in  the  case  of 
Bassett  vs.  Fairchild,  which  decision  is  printed  in  Volume 
132  of  the  California  Reports,  page  631.) 

Section  981.— LIABILITY  OF  DIRECTORS  FOR 
MONEY  EMBEZZLED.— The  Directors  of  a  corporation 
are  individually  and  personally  liable  to  its  creditors  for 
money  embezzled  by  any  of  the  officers  of  the  corporation. 
This  the  Constitution  of  the  State  declares.  But  they  are 
liable  only  to  all  the  creditors,  and  one  creditor  cannot  sue 
alone  to  recover  his  debt  by  reason  of  failure  to  pay  when 
the  funds  of  a  corporation  have  been  embezzled.  All  the 
creditors  must  be  joined  in  such  a  suit,  and  the  money 
recovered  to  the  corporation  from  the  Directors  will  con- 
stitute a  trust  fund  to  be  paid  to  all  the  creditors. 

Section  982.— ADVANCES  OF  MONEY  BY  DI- 
RECTOR.— Where  money  is  advanced  to  a  corporation 
by  a  Director,  when  the  corporation  is  in  debt  and  unable 
to  obtain  money  from  other  sources,  and  such  money  is 
received  and  made  use  of  in  the  business  of  the  corpora- 
tion, it  will  be  liable  to  him  for  the  repayment  of  the  sum 
advanced. 

Section  983.— DIRECTORS  IN  TWO  CORPORA- 
TIONS.— The  fact  that  two  corporations  have  the  same 
Directors,  or  that  some  of  the  Directors  in  one  are  also 
Directors  in  the  other,  does  not  prevent  the  two  corpora- 
tions from  dealing  with  each  other.  Where  two  corpora- 
tions, through  their  Boards  of  Directors,  make  a  contract 
with  each  other,  the  Directors  who  are  common  to  both 


CORPORATIONS  IN  CALIFORNIA.  539 

are  not  within  the  rule  which  prohibits  one  who  acts  in 
a  fiduciary  capacity  from  dealing  with  himself.  Two  cor- 
porations have  the  right,  within  the  scope  of  their  chartered 
powers,  to  deal  with  each  other ;  and  this  right  is  not 
destroyed  by  the  fact  that  some,  or  even  a  majority,  of  the 
Directors  are  common  to  both.  Of  course,  if  such  Directors 
should  wrongfully  use  their  powers  to  the  prejudice  of  one 
of  the  corporations,  their  action  could  be  set  aside  for 
fraud.  But  common  Directors  owe  the  same  fidelity  to 
both  corporations,  and  there  is  no  presumption  that  they 
will  deal  unfairly  with  either;  and  therefore  their  acts  as 
such  common  Directors  are  not  void. 

Section    984.— AUTHORITY    OF    PRESIDENT.— The 

President  of  a  corporation  may  have  more  extensive  powers 
conferred  upon  him  than  a  strict  interpretation  of  the  law 
would  show.  The  Directors  of  a  business  corporation  have 
power,  by  resolution,  to  give  the  President  general  authority 
to  incur  debts,  negotiate  loans,  enter  into  contracts,  and 
otherwise  act  as  the  agent  of  the  corporation;  and  where 
a  resolution  of  this  kind  is  passed  at  a  meeting  of  the 
Directors,  unless  it  is  in  direct  conflict  with  the  By-Laws, 
the  President  will  have  authority  to  do  all  such  acts  on 
behalf  of  the  corporation  as  are  mentioned  in  the  resolution. 
(Decided  by  the  Supreme  Court  in  the  case  of  McCormick 
vs.  Stockton  and  Tuolumne  County  R.  R.  Company,  which 
decision  is  printed  in  Volume  130  of  the  California  Reports, 
page  100.) 

Section  985.— PRESIDENT  MAY  EMPLOY  ATTOR- 
NEY.— The  President  of  a  corporation  has  power  to  employ 
an  attorney,  when  the  exigencies  of  his  company  require  it. 
He  need  not  obtain  the  consent  of  the  Directors  or  stock- 
holders to  do  this.  By  virtue  of  his  position  as  official  head 
of  the  corporation  he  has  the  power  to  do  so. 

Section  986.— DIVIDENDS.— The  Directors  of  a  cor- 
poration cannot  make  dividends,  except  from  the  surplus 


540  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

profits  arising  from  the  business.  The  Directors  cannot 
withdraw,  divide,  or  pay  to  the  stockholders,  or  any  of 
them,  any  part  of  the  capital  stock,  while  the  corporation 
is  a  going  concern. 

Civil  Code,  Section  309. 

Section  986a.— AGREEMENT  TO  DIVIDE  CAPITAL 
STOCK  AMONG  STOCKHOLDERS  VOID.— An  agree- 
ment upon  the  part  of  a  corporation  to  divide  its  whole  capi- 
tal stock  among  its  stockholders,  prior  to  its  dissolution,  is 
void. 

Where  a  corporation  wrongfully  pays  to  some  of  its 
stockholders  their  proportionate  share  of  the  money  re- 
ceived from  the  sale  of  the  entire  property  of  the  corpora- 
tion, the  remedy  of  a  stockholder  who  has  not  been  paid  is 
to  compel  the    restoration  of  the  funds  illegally  distributed. 

(Decided  by  the  Supreme  Court  of  California,  in  the  case 
of  Tapscott  vs.  Mexican  Colorado  River  Land  Company, 
which  decision  is  printed  in  California  Decisions,  Volume 
35,  page  598.)  *■ 

Section  987.— EXTENT  OF  DEBTS  TO  BE  CRE- 
ATED.— The  Directors  of  a  corporation  have  no  power 
to  create  debts  beyond  the  amount  of  the  subscribed  capital 
stock.  If  they  create  debts  beyond  the  capital  stock,  the 
Directors  are  individually,  jointly,  and  severally  liable  to 
the  corporation  and  the  creditors  for  such  debts.  A  Di- 
rector, however,  who  is  not  present  at  the  meeting  when 
the  debt  is  created,  or  who  has  his  dissent  to  the  Board's 
action  entered  on  the  minutes,  will  not  be  liable. 
Civil  Code,  Section  309. 

Section    988.— RECORDS    OF    CORPORATION.— All 

corporations  for  profit  in  California  are  required  by  the 
law  to  keep  a  record  of  all  their  business  transactions ;  a 
journal  of  all  meetings  of  their  Directors,  members,  or 
stockholders,  with  the  time  and  place  of  holding  the  same, 


CORPORATIONS  IN  CALIFORNIA.  541 

whether  regular  or  special,  and  if  special,  its  object,  how 
authorized,  and  the  notice  thereof  given.  The  record  must 
embrace  every  act  done  or  ordered  to  be  done ;  who  were 
■present,  and  who  absent ;  and,  if  requested  by  any  Director, 
member,  or  stockholder,  the  time  shall  be  noted  when  he 
entered  the  meeting  or  obtained  leave  of  absence  therefrom. 
On  a  similar  request,  the  ayes  and  noes  must  be  taken  on 
any  proposition,  and  a  record  thereof  made.  On  similar 
request,  the  protest  of  any  Director,  member,  or  stock- 
holder, to  any  action  or  proposed  action,  must  be  entered 
in  full.  All  such  records  must  be  open  to  the  inspection 
of  any  Director,  member,  stockholder,  or  creditor  of  the 
corporation.  Corporations  for  profit  must  also  keep  a  book, 
to  be  known  as  the  "Stock  and  Transfer  Book,"  in  which 
must  be  kept  a  record  of  all  stock ;  the  names  of  the  stock- 
holders, or  members,  alphabetically  arranged ;  installments 
paid  or  unpaid;  assessments  levied  and  paid  or  unpaid; 
a  statement  of  every  alienation,  sale,  or  transfer  of  stock 
made,  the  date  thereof,  and  by  and  to  whom ;  and  all  such 
other  records  as  the  By-Laws  prescribe.  Such  "Stock  and 
Transfer  Book"  must  be  kept  open  to  the  inspection  of  any 
stockholder,  member,  or  creditor. 

Civil  Code,  Section  Z77 ,  378. 

Section  989.— REMOVAL  OF  DIRECTORS  FROM 
OFFICE. — No  Director  can  be  removed  from  office,  unless 
by  a  vote  of  two-thirds  of  the  members,  or  of  stockholders 
holding  two-thirds  of  the  capital  stock,  at  a  general  meeting 
held  after  previous  notice  of  the  time  and  place,  and  of  the 
intention  to  propose  such  removal.  Meetings  of  stock- 
holders for  this  purpose  may  be  called  by  the  President 
or  by  a  majority  of  the  Directors,  or  by  members  or  stock- 
holders holding  at  least  one-half  of  the  votes.  Such  calls 
must  be  in  writing,  and  addressed  to  the  Secretary,  who 
must  thereupon  give  notice  of  the  time,  place,  and  object 
of  the  meeting,  and  by  whose  order  it  is  called.  If  the 
Secretary  refuse  to  give  the  notice,  or  if  there  is  no  Sec- 
retary, the  call  may  be  addressed  directly  to  the  members  or 


542  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Stockholders,  and  be  served  as  a  notice,  in  which  case  it 
must  specify  the  time  and  place  of  meeting. 

Section  990.— EXAMINATION  OF  CORPORATIONS. 

— As  the  right  of  corporations  to  exist  and  do  business 
comes  from  the  State,  it  follows  logically  that  the  State 
retains  the  power  to  examine  into  the  affairs  of  all  cor- 
porations at  any  time.  The  law  provides  that  the  Governor 
may  require  the  Attorney-General,  or  the  District  Attor- 
ney of  any  county,  to  make  an  examination  into  the  affairs 
of  a  corporation  and  report  to  the  Governor.  The  Legis- 
lature may  also  examine  into  "the  condition  and  affairs  of  a 
corporation,  by  a  committee  appointed  by  either  the  Senate 
or  Assembly.  And  the  Legislature  may  dissolve  all  cor- 
porations by  repealing  the  laws  under  which  they  were 
created. 

Civil  Code,  Sections  382,  383,  384. 

Section  991.— DISSOLUTION  OF  CORPORATION.— 

The  dissolution  of  a  corporation  may  be  voluntary,  or 
involuntary.  It  is  voluntary,  when  the  dissolution  is 
effected  by  consent  of  the  stockholders  or  members.  It 
is  involuntary,  when  the  dissolution  is  compelled  against 
or  without  the  consent  of  the  stockholders  or  members. 
If  voluntary,  an  application  is  made  to  the  Superior  Court 
of  the  county  where  the  principal  place  of  business  of  the 
corporation  is.  This  application  to  the  Court  must  first 
be  authorized  by  a  resolution  of  the  members  or  stock- 
holders, adopted  by  a  two-thirds  vote  of  the  members,  where 
there  is  no  capital  stock,  or  by  a  vote  of  the  holders  of  two- 
thirds  of  the  subscribed  capital  stock;  and  it  must  also 
appear  that  all  claims  and  demands  against  the  corporation 
have  been  paid  and  discharged.  A  corporation  may  also 
be  dissolved  against  the  consent  of  the  stockholders  by  a 
judgment  of  dissolution  in  a  suit  brought  by  the  Attorney- 
General.  In  such  a  suit,  if  it  appears  that  the  corporation 
is  doing  a  business  not  provided  for  by  its  charter,  or  has 
ceased  to  do  business  at  all,  or  its  term  of  existence  has 


CORPORATIONS  IN  CALIFORNIA.  543 

expired,  or  is  in  such  a  condition  that  it  can  no  longer  hope 
to  carry  out  the  ends  and  purposes  of  the  corporation,  the 
corporation  will  be  declared  dissolved  by  judgment  of  the 
Court. 

Code  of  Civil  Procedure,  Sections  803,  1227,  1228. 

Act  of  the  Legislature,  in  effect  May  17,  1907. 

Section  992.— DISPOSITION  TO  BE  MADE  OF 
PROPERTY  UPON  DISSOLUTION.— Upon  the  disso- 
lution of  a  corporation,  the  capital  stock,  and  all  property 
belonging  to  the  corporation,  will  be  divided  among  the 
stockholders  in  proportion  to  the  number  of  shares  held  by 
each.  But  before  any  such  division  can  be  made,  it  must 
appear  that  all  debts  of  the  corporation  have  been  paid. 
The  Directors  of  a  dissolved  corporation  have  authority  to 
go  on  and  make  final  settlement  of  its  affairs,  and  have 
power  to  make  a  division  of  the  property  left  over  after 
the  payment  of  the  debts. 

Civil  Code,  Section  309. 

Section  993.— FALSE  REPORTS.— Any  officer  of  a  cor- 
poration who  wilfully  gives  a  certificate,  or  wilfully  makes 
an  official  report,  public  notice,  or  entry  in  any  of  the  rec- 
ords or  books  of  the  corporation,  concerning  the  corpora- 
tion or  its  business,  which  is  false  in  any  material  repre- 
sentation, is  liable  for  all  the  damages  resulting  therefrom 
to  any  person  injured  thereby;  and  if  two  or  more  officers 
unite  or  participate  in  the  commission  of  any  of  such  acts, 
they  are  jointly  and  severally  liable. 
Civil  Code,  Section  316. 

Section  994.— TRANSFER  OF  FRANCHISE.— No  sale, 
lease,  assignment,  transfer,  or  conveyance  of  the  business, 
franchise,  and  property,  as  a  whole,  of  any  corporation  is 
valid  without  the  consent  of  stockholders  holding  of  rec- 
ord at  least  two-thirds  of  the  issued  capital  stock  of  the 
corporation ;  such  consent  to  be  either  expressed  in  writing, 


544  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

executed  and  acknowledged  by  such  stockholders,  and  at- 
tached to  such  sale,  lease,  assignment,  transfer,  or  convey- 
ance, or  by  a  vote  at  a  stockholders'  meeting  called  for  that 
purpose ;  but  with  such  assent  so  expressed,  such  sale,  lease, 
assignment,  transfer,  or  conveyance  is  valid. 
Statutes  of  1903,  page  396. 

Section  995.— TRANSFER  OF  FOREIGN  CONCES- 
SIONS.— A  corporation  owning  grants,  concessions,  fran- 
chises, and  property,  in  a  foreign  country,  has  the  right 
under  our  laws  to  sell  and  convey  the  same;  but  such  sale 
and  conveyance  can  only  be  made  by  a  resolution  adopted 
by  the  vote  of  a  majority  of  the  Board  of  Directors,  and 
the  written  consent  of  the  holders  of  two-thirds  of  the 
capital  stock. 

Statutes  of  1899,  page  95. 

Section  996.— GENERAL  POWERS  OF  CORPORA- 
TION.— The  law  provides  what  shall  be  the  general  powers 
of  a  corporation  in  California.  Every  corporation  in  Cali- 
fornia has  power,  (1)  To  sue  and  be  sued  in  any  court; 
(2)  To  make  and  use  a  common  seal,  and  alter  the  same 
at  pleasure;  (3)  To  purchase,  hold,  and  convey  such  real 
and  personal  estate  as  the  purpose  of  the  corporation  may 
require;  (4)  To  appoint  such  subordinate  officers  or  agents 
as  the  business  of  the  corporation  may  require,  and  to  allow 
them  suitable  compensation;  (5)  To  make  By-Laws,  not 
inconsistent  with  any  existing  law,  for  the  management  of 
its  property,  the  regulation  of  its  affairs,  and  for  the  transfer 
of  its  stock;  (6)  To  admit  stockholders  or  members,  and 
to  sell  their  stock  or  shares  for  the  payment  of  assessments 
or  installments;  (7)  To  enter  into  any  obligations  or  con- 
tracts essential  to  the  transaction  of  its  ordinary  affairs, 
or  for  the  purpose  of  the  corporation.  The  manner  of  the 
exercise  of  these  general  powers  has  already  been  stated  in 
preceding  sections. 

Civil  Code,  Section  354. 


CORPORATIONS  IN  CALIFORNIA.  545 

Section    997.— TAXATION    OF    CORPORATIONS.— 

Shares  of  stock  in  corporations  possess  no  intrinsic  value 
over  and  above  the  actual  value  of  the  property  of  the  cor- 
poration which  they  stand  for  and  represent ;  and  the  assess- 
ment and  taxation  of  such  shares,  and  also  all  the  corporate 
property,  would  be  double  taxation.  Therefore,  all  prop- 
erty belonging  to  corporations  (except  the  property  of 
national  banking  associations  not  assessable  by  Federal 
statute)  can  be  assessed  and  taxed.  But  no  assessment  can 
be  made  of  shares  of  stock  in  any  corporation  (except  in 
national  banking  associations,  whose  property,  other  than 
real  estate,  is  exempt  from  assessment  by  Federal  statute). 
Statutes  of  1899,  page  96. 

Section  998.— LAWS  APPLYING  TO  PARTICULAR 
CORPORATIONS.— There  are  certain  laws  which  apply 
to  particular  corporations,  and  which  qualify  in  important 
provisions  the  general  laws  stated  in  preceding  Sections 
of  this  book.  In  following  Sections  will  be  found  a  state- 
ment of  laws  applying  to  particular  corporations.  It  must 
not  be  understood,  however,  that  the  general  laws  do  not 
apply  to  the  corporations  named ;  for  all  the  general  laws  do 
apply  to  all  corporations,  but  qualified  and  limited  by  the 
application  of  laws  applying  to  particular  corporations. 

Section  999.— BANKING  CORPORATIONS.— The  Leg- 
islature of  1909  passed  a  new  Bank  Act,  in  effect  July  1st, 
1909,  substantially  as  follows : 

(a) — Division  of  Banks  Into  Classes. — The  word  "bank" 
as  used  in  this  act  includes  every  person,  firm,  company, 
copartnership  or  corporation  which  conducts  the  business 
of  receiving  money  on  deposit.  Banks  are  divided  into  the 
following  classes : 

(a)  Savings  banks; 

(b)  Commercial  banks ;  and 

(c)  Trust  companies. 

The  term  "savings  bank,"  when  used  in  this  act,  means  a 
bank  organized  for  the  purpose  of  accumulating  and  loaning 


546  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

the  funds  of  its  members,  stockholders,  and  depositors,  and 
which  may  loan  and  invest  the  funds  thereof,  receive  de- 
posits of  money;  loan,  invest  and  collect  the  same  with  in- 
terest; and  may  repay  depositors  with  or  without  interest, 
and  having  power  to  invest  said  funds  in  such  property, 
securities  and  obligations  as  may  be  prescribed  by  this  act; 
and  to  declare  and  pay  dividends  on  its  general  deposits, 
and  a  stipulated  rate  of  interest  on  deposits  made  for  a  stated 
period  or  upon  special  terms. 

The  term  "commercial  bank,"  when  used  in  this  act, 
means  any  bank  authorized  by  law  to  receive  deposits  of 
money,  deal  in  commercial  paper  or  to  make  loans  thereon, 
and  to  lend  money  on  real  or  personal  property,  and  to  dis- 
count bills,  notes,  or  other  commercial  paper,  and  to  buy 
and  sell  securities,  gold  and  silver  bullion,  or  foreign  coins 
or  bills  of  exchange. 

The  term  "trust  company,"  when  used  in  this  act,  means 
any  company  which  is  incorporated  for  the  purpose  of  con- 
ducting the  business  of  acting  as  executor,  administrator, 
guardian  of  estates,  assignee,  receiver,  depositary,  or  trustee. 

(b) — Foreign  Corporations. — No  foreign  corporation  shall 
transact  a  banking  business  in  this  State  without  first  com- 
plying with  all  the  requirements  of  the  laws  of  this  State 
relative  to  banks  as  defined  in  this  act,  and  without  having 
the  capital  paid  up  in  this  State  as  required  by  this  act. 
And  no  such  foreign  corporation  shall  transact  any  banking 
business  in  this  State  until  it  has  executed  and  filed  with  the 
Superintendent  of  Banks  a  written  instrument  appointing 
such  superintendent,  or  his  successor  in  office,  its  true  and 
lawful  attorney,  upon  whom  all  process  in  any  action  or 
proceeding  by  any  resident  of  the  State  against  it  may  be 
served,  with  the  same  elTect  as  if  such  corporation  was 
formed  under  the  laws  of  this  State  and  had  been  lawfully 
served  with  process  therein.  Service  in  favor  of  a  resident 
of  this  State  upon  such  attorney  shall  be  deemed  personal 
service  on  such  corporation.  The  Superintendent  of  Banks 
shall   forthwith  forward  by   mail  a  copy  of  every  process 


CORPORATIONS  IN  CALIFORNIA.  547 

served  upon  him  under  the  provisions  of  this  section,  post- 
age prepaid,  and  directed  to  the  secretary  of  such  corpora- 
tion, at  its  last  known  post  office  address.  For  each  copy  of 
process,  the  Superintendent  of  Banks  shall  collect  the  sum 
of  two  dollars,  which  shall  be  paid  by  the  plaintiff  or  moving 
party  at  the  time  of  such  service,  to  be  recovered  by  him  as 
part  of  his  taxable  costs  if  he  succeed  in  the  suit  or  pro- 
ceeding. 

Every  corporation,  at  the  time  it  applies  for  a  certificate 
to  do  a  banking  business,  must  file  with  the  Superintendent 
of-  Banks  a  certified  copy  of  its  articles  of  incorporation,  or 
of  the  statute  chartering  such  corporation,  also  all  instru- 
ments amending  or  altering  such  articles  of  incorporation  or 
charter.  Thereafter  all  amendments  and  certificates  shall 
likewise  be  so  filed  before  such  instruments  take  efTect.  In 
like  manner  all  copartnerships  shall  file  certified  copies  of 
their  articles  of  copartnership  and  all  amendments  thereto. 

(c) — Branch  Banks. — No  bank  in  this  State,  or  any  officer 
or  director  thereof,  shall  hereafter  open  or  keep  an  office 
other  than  its  principal  place  of  business,  without  first  hav- 
ing obtained  the  written  approval  of  the  Superintendent  of 
Banks  to  the  opening  of  such  branch  office,  which  written 
approval  may  be  given  or  withheld  in  his  discretion,  and 
shall  not  be  given  by  him  until  he  has  ascertained  to  his 
satisfaction  that  the  public  convenience  and  advantage  will 
be  promoted  by  the  opening  of  such  branch  office ;  and,  pro- 
vided further,  that  no  bank  or  any  officer  or  director  thereof, 
shall  open  or  maintain  such  branch  unless  the  capital  of  such 
bank,  actually  paid  in  cash,  shall  exceed  the  amount  re- 
quired by  this  act  by  the  sum  of  twenty-five  thousand  dollars 
for  each  branch  office  opened  and  maintained.  Every  bank, 
and  every  such  officer  or  director  violating  the  provisions 
of  this  section  shall  be  guilty  of  a  misdemeanor. 

(d) — Bank  Directors. — No  person  "  shall  be  eligible  for 
election  as  a  director  of  a  bank  unless  he  is  a  stockholder  of 
the  bank,  owning,  in  his  own  right,  shares  thereof  of  the 
actual  market  value  of  at  least  five  hundred  dollars;  and 


548  BUSINESS  LA.WS  FOR  BUSINESS  MEN. 

every  person  elected  to  be  director  who,  after  such  election, 
shall  cease  to  be  the  owner  in  his  own  right  of  the  amount 
of  stock  aforesaid,  shall  then  cease  to  be  a  director  of  the 
bank,  and  his  office  shall  then  become  vacant.  If  a  bank  be 
organized  without  capital  stock,  no  person  shall  be  eligible 
as  a  director  thereof  unless  he  is  both  a  member  and  a  de- 
positor of  such  bank. 

Each  director  of  a  bank,  when  appointed  or  elected,  shall 
take  an  oath  that  he  will,  so  far  as  the  duty  devolves  on  him, 
diligently  and  honestly  administer  the  affairs  of  such  bank, 
and  will  not  knowingly  violate  or  wilfully  permit  to  be 
violated  any  of  the  provisions  of  law  applicable  to  such 
bank,  and  that  he  is  the  owner  in  good  faith  and  in  his  own 
right  of  the  shares  of  stock  of  the  actual  market  value  re- 
quired by  this  act,  subscribed  by  him  or  standing  in  his  name 
on  the  books  of  the  bank,  and  that  the  same  is  not  hypothe- 
cated or  in  any  way  pledged  as  security  for  any  loan  or  debt ; 
and,  in  case  of  re-election  or  re-appointment,  that  such  stock 
was  not  hypothecated  or  in  any  way  pledged  as  security  for 
any  loan  or  debt  during  his  previous  term.  Such  oath  shall 
be  subscribed  by  the  director  making  it,  and  certified  by  the 
officer  before  whom  it  is  taken ;  and  shall  be  immediately 
transmitted  to  the  Superintendent  of  Banks,  and  filed  and 
preserved  in  his  office. 

(e) — Unincorporated  Bankers. — Every  person  or  number 
of  persons,  not  being  incorporated,  engaged  in  the  business 
of  banking  or  publicly  receiving  money  on  deposits,  must 
conduct  such  business  under  a  name  which  shows  the  true 
name  of  all  persons  engaged  therein,  unless  such  person  or 
persons  are  doing  business  as  a  special  partnership. 

(f) — Advertising. — No  bank,  or  any  officer  thereof,  shall 
advertise  in  any  manner,  or  publish  any  statement  of  the 
capital  authorized  or  subscribed,  unless  it  or  he  advertise 
and  publish,  in  connection  therewith,  the  amount  of  capital 
actually  paid  up.  Any  bank,  or  any  officer  thereof,  adver- 
tising in  any  manner,  or  publishing  any  statement  of  such 
capital,  authorized  or  subscribed,  without  a  statement  in 


CORPORATIONS  IN  CALIFORNIA.  549 

connection  therewith  of  the  capital  actually  paid  up,  shall  be 
guilty  of  a  misdemeanor. 

(g) — Deposits  of  Dead  Persons. — The  president  or  man- 
aging officer  of  every  bank  must,  within  fifteen  days  after 
the  first  day  of  January  of  every  odd  numbered  year,  return 
to  the  Superintendent  of  Banks  a  sworn  statement  showing 
the  names  of  depositors  known  to  be  dead,  or  who  have  not 
made  further  deposits,  or  withdrawn  any  moneys  during  the 
preceding  ten  years.  Such  statements  shall  show  the  amount 
of  the  account,  the  depositor's  last  known  place  of  residence 
or  post  office  address,  and  the  fact  of  death,  if  known  to 
such  president  or  managing  officer.  Such  president  or  man- 
aging officer  must  give  notice  of  these  deposits  in  one  or 
more  newspapers  published  in  or  nearest  to  the  town  or  city 
where  such  bank  has  its  principal  place  of  business,  at  least 
once  a  week  for  four  consecutive  weeks,  the  cost  of  such 
publication  to  be  paid  pro  rata  out  of  such  unclaimed  de- 
posits. This  section  does  not  apply  to  any  deposit  made  by 
or  in  the  name  of  a  person  known  to  the  president  or  man- 
aging officer  to  be  living,  or  which,  with  the  accumulation 
thereon,  is  less  than  fifty  dollars.  The  Superintendent  of 
Banks  must  incorporate  in  his  subsequent  report  such  re- 
turns made  to  him  as  provided  in  this  section.  Any  presi- 
dent or  managing  officer  of  any  bank  who  neglects  or  re- 
fuses to  make  the  sworn  statement  required  by  this  section 
shall  be  guilty  of  ^a  misdemeanor. 

(h) — Deposits  by  Married  Women  or  Minors. — When  any 
deposit  with  a  bank  shall  be  made  by  or  in  the  name  of  any 
married  woman  or  minor,  the  same  shall  be  held  for  the 
exclusive  right  and  benefit  of  such  depositor,  and  free  from 
the  control  or  lien  of  all  other  persons,  except  creditors,  and 
shall  be  paid,  together  with  the  dividends,  if  any,  and  interest, 
if  any,  thereon  to  the  person  in  whose  name  deposits  shall 
have  been  made,  and  the  receipt  or  acquittance  of  such  minor 
shall  be  a  valid  and  sufficient  release  and  discharge  for  such 
deposit,  or  any  part  thereof,  to  the  bank.    When  any  deposit 


650  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

with  a  bank  shall  be  made  by  any  person  in  trust  for  another, 
and  no  other  or  further  notice  of  the  existence  and  terms  of 
a  legal  and  valid  trust  shall  have  been  given  in  writing  to 
such  bank,  in  the  event  of  the  death  of  the  trustee,  the  same 
or  any  part  thereof,  together  with  the  dividends  or  interest,  if 
any,  thereon,  may  be  paid  to  the  person  for  whom  the  deposit 
was  made.  When  a  deposit  with  a  bank  shall  be  made  by  any 
person  in  the  names  of  such  depositor  and  another  person  or 
persons,  and  in  form  to  be  paid  to  either  or  the  survivor  or 
survivors  of  them,  such  deposit  thereupon,  and  any  additions 
thereto  made  by  either  of  such  persons  upon  the  making 
thereof,  shall  become  the  property  of  such  persons  as  joint 
tenants,  and  the  same,  together  with  all  interest  thereon, 
shall  be  held  for  the  exclusive  use  of  the  persons  so  named, 
and  may  be  paid  to  either  during  the  lifetime  of  all  or  any  or 
to  the  survivor  or  survivors  after  the  death  of  one  or  more 
of  them,  and  such  payments  and  the  receipt  or  acquittance 
of  the  one  to  whom  such  payment  is  made  shall  be  a  valid 
and  sufficient  release  and  discharge  to  said  bank  for  all  pay- 
ments made  on  account  of  such  deposit. 

The  surviving  husband  or  wife  of  any  deceased  person,  or, 
if  no  husband  or  wife  is  living,  then  the  children  of  such  de- 
cedent, and  if  no  children  are  living,  then  the  father  or 
mother  of  such  decedent,  may,  without  procuring  letters  of 
administration,  collect  of  any  bank  any  sum  which  said  de- 
ceased may  have  left  on  deposit  in  such  bank  at  the  time  of 
his  or  her  death ;  provided,  such  deposit  shall  not  exceed  the 
sum  of  five  hundred  dollars.  Any  bank,  upon  receiving  an 
affidavit  stating  that  said  depositor  is  dead,  and  that  affiant 
is  the  surviving  husband  or  wife,  as  the  case  may  be,  or 
stating  that  decedent  left  no  husband  or  wife,  and  that  affiant 
is,  or  affiants  are,  the  children,  or  the  father  or  mother,  of 
said  decedent,  and  that  the  whole  amount  that  decedent  left 
on  deposit  in  any  and  all  banks  of  deposit  in  this  State  does 
not  exceed  the  sum  of  five  hundred  dollars,  may  pay  to  said 
affiant  or  affiants  any  deposit  of  said  decedent,  if  the  same 


CORPORATIONS  IN  CALIFORNIA.  551 

does  not  exceed  the  sum  of  five  hundred  dollars,  and  the 
receipt  of  such  affiant  is  sufficient  acquittance  therefor. 

(i) — List  of  Stockholders. — Every  bank  now  in  existence 
or  hereafter  organized  shall  keep  in  its  offices,  in  a  place  ac- 
cessible to  the  stockholders,  depositors,  and  creditors  there- 
of, and  for  their  use,  a  book  containing  a  list  of  stockholders 
in  such  corporation,  and  the  number  of  shares  of  stock  held 
by  each ;  and  every  such  bank  shall  keep  posted  in  its  office, 
in  a  conspicuous  place,  accessible  to  the  public  generally,  a 
notice  signed  by  the  president  or  secretary,  showing : 

1.  The  names  of  the  directors  of  such  bank. 

2.  The  number  and  par  value  of  the  shares  of  stock  held 
by  each  director. 

The  entries  on  such  book  and  such  notice  shall  be  made 
and  posted  within  twenty-four  hours  after  any  transfer  of 
stock,  and  shall  be  prima  facie  evidence  against  each  director 
and  stockholder  of  the  number  of  shares  of  stock  held  by 
each. 

Every  copartnership  doing  a  banking  business  shall  keep 
in  its  office,  in  a  place  accessible  to  the  partners  and  de- 
positors and  the  creditors  thereof,  a  list  of  the  partners  and 
the  capital  paid  into  the  copartnership  of  each  partner. 

(j) — Capital  and  Reserve. — The  aggregate  of  paid-up  cap- 
ital, togther  with  the  surplus,  of  every  bank,  must  equal  ten 
per  centum  of  its  deposit  liabilities ;  such  deposit  liabilities 
shall  not  be  increased  when  such  proportion  of  paid-up  cap- 
ital and  surplus  is  wanting,  and  in  no  event  shall  said  paid- 
up  capital  be  less  than  the  minimum  paid-up  capital  provided 
by  this  act.  And,  provided  also,  that  no  savings  bank  shall 
be  required  to  have  a  paid-up'  capital  and  surplus  of  more 
than  one  million  dollars,  or  if  organized  without  a  capital 
stock,  a  reserve  fund  of  more  than  one  million  dollars. 

Every  bank,  other  than  a  savings  bank,  shall  at  all  times 
have  on  hand,  in  lawful  money  of  the  United  States,  gold 
and  silver  coin,  gold  certificates  or  silver  certificates,  an 
amount  equal  to  fifteen  per  centum  of  the  aggregate  amount 


652  BUSINESS  liAWS  FOR  BUSINESS  MEN. 

of  its  deposits,  exclusive  of  State,  county  and  municipal  de- 
posits. The  amount  thus  to  be  kept  on  hand  shall  be  called 
its  lawful  money  reserve.  Three-fifths  of  such  lawful  money 
reserve  of  any  bank  other  than  a  savings  bank  may  consist 
of  moneys  on  deposit  subject  to  call  with  any  bank  or  banks 
other  than  a  savings  bank  in  this  State ;  provided,  that  every 
bank  receiving  deposits  of  other  banks  shall  maintain  as  a 
lawful  money  reserve  at  least  twenty  per  centum  of  the 
aggregate  amount  of  its  deposits,  exclusive  of  State,  county 
and  municipal  deposits.  If  the  lawful  money  reserve  of  any 
bank  shall  be  less  than  the  amount  required  by  this  section, 
such  bank  shall  not  increase  its  liability  by  making  any  new 
loans  or  discounts,  otherwise  than  by  discounting  bills  of 
exchange  payable  on  sight,  or  making  any  dividends  from 
profits  until  the  full  amount  of  its  lawful  money  reserve  has 
been  restored.  The  Superintendent  of  Banks  may  notify  any 
bank,  whose  lawful  money  reserve  shall  be  below  the  amount 
herein  required,  to  make  good  such  reserve;  and,  if  it  shall 
fail  for  thirty  days  thereafter  to  make  good  such  reserve, 
such  bank  shall  be  deemed  insolvent  and  may  be  proceeded 
against  under  the  provisions  of  this  act. 

The  directors  of  banks  having  a  capital  stock  may,  at  such 
times  and  in  such  manner  as  the  by-laws  prescribe,  declare 
and  pay  dividends  to  depositors  and  stockholders  of  so  much 
of  the  profits  of  the  bank,  and  of  the  interest  arising  from 
the  capital  and  deposits,  as  may  be  appropriated  for  that 
purpose  under  the  by-laws  or  under  their  agreements  with 
depositors,  but  every  such  bank  shall,  before  the  declaration 
of  such  dividend,  carry  at  least  one-tenth  (1-10)  part  of  the 
net  profits  of  the  stockholders  for  the  preceding  half  year  to 
its  surplus  or  reserve  fund  until  the  same  shall  amount  to 
twenty-five  per  centum  of  its  paid-up  capital  stock.  But  the 
whole  or  any  part  of  such  surplus  or  reserve  fund,  if  held 
as  the  exclusive  property  of  stockholders,  may  at  any  time 
be  converted  into  paid-up  capital  stock,  in  which  event  such 
surplus  or  reserve  fund  shall  be  restored  in  manner  as  above 
provided  until  it  amounts  to  twenty-five  per  centum  of  the 


CORPORATIONS  IN  CALIFORNIA.  553 

aggregate  paid-up  capital  stock.  A  larger  surplus  or  reserve 
fund  may  be  created,  and  nothing  herein  contained  shall  be 
construed  as  prohibitory  thereof.  The  capital  and  the  assets 
of  the  bank  are  a  security  to  depositors  and  stockholders, 
depositors  having  the  priority  of  security  over  the  stock- 
holders, but  the  by-laws  may  provide  that  the  same  security 
shall  extend  to  deposits  made  by  stockholders. 

Any  corporation  authorized  by  its  articles  of  incorpora- 
tion so  to  do,  may  combine  the  business  of  a  commercial 
bank  and  savings  bank  and  trust  company,  or  any  or  all  of 
them. 

Every  bank  doing  a  departmental  business,  shall  have 
paid  up  in  cash  a  capital  stock  of  not  less  than  twenty-five 
thousand  dollars  if  it  transacts  both  a  commercial  and  sav- 
ings business ;  and  paid  up  in  cash  a  capital  stock  of  not  less 
than  two  hundred  twenty-five  thousand  dollars  if  it  tran- 
sacts both  a  commercial  and  trust  business ;  and  paid  up  in 
cash  a  capital  stock  of  not  less  than  two  hundred  twenty- 
five  thousand  dollars  if  it  transacts  both  a  savings  and  trust 
business ;  and  paid  up  in  cash  a  capital  stock  of  not  less  than 
two  hundred  twenty-five  thousand  dollars  if  it  transacts 
a  commercial,  savings  and  trust  business.  Such  capital  stock 
shall  be  increased  from  time  to  time  in  the  same  manner  and 
to  the  same  extent  as  provided  for  in  this  act. 

Every  bank,  before  it  commences  to  do  business  or  before 
it  opens  a  new  department  and  commences  to  transact  busi- 
ness in  or  under  such  new  department,  shall  obtain  the  cer- 
tificate of  the  Superintendent  of  Banks  for  the  opening  of 
each  of  the  departments  specified.  Each  certificate  herein 
provided  for  shall  be  given  when  the  superintendent  shall, 
by  the  examination  required  by  this  act,  have  satisfied  him- 
self that  the  proper  amount  of  cash  has  been  paid  in  as 
capital  and  the  provisions  of  this  act  complied  with.  The 
applicant  shall  pay  for  such  certificate  a  fee  of  fifty  dollars. 

Every  bank  shall  maintain  for  each  department  a  lawful 
money  reserve  equal  in  amount  to  that  required  by  this  act 
for    the    respective    business    conducted,    and    shall    keep 


554  BUSINESS  lAWS  FOR  BUSINESS  MEN. 

separate  and  distinct  the  lawful  money  reserve  of  any  de- 
partment from  that  of  any  other  department ;  and  all  deposits 
made  with  other  banks,  whether  temporary  or  otherwise, 
shall  be  assets  of  the  respective  departments  by  which  they 
were  made,  and  shall  be  so  carried  on  the  books  of  such  other 
banks,  and  shall  be  repaid  only  upon  the  order  of  the  depart- 
ment to  whose  credit  they  stand. 

No  department  shall  receive  deposits  of  any  other  depart- 
ment of  the  same  corporation ;  provided,  however,  that  any 
bank  having  departments  shall  have  the  right  to  sell  and 
transfer  any  bonds,  securities  or  loans  from  one  department 
to  another  upon  receipt  of  the  actual  value  thereof,  if  such 
bonds,  securities  or  loans  are  a  legal  investment  for  the 
department  purchasing  the  same  under  the  provisions  of  this 
act. 

(k) — Departments. — Every  bank  having  different  depart- 
ments shall  keep  separate  books  of  account  for  each  depart- 
ment of  its  business,  and  shall  be  governed  as  to  all  deposits, 
reserves,  investments  and  transactions  relating  to  each  de- 
partment by  the  provisions  in  this  act  specifically  provided 
for  the  respective  kind  of  business. 

It  shall  keep  all  investments  relating  to  the  savings  de- 
partment entirely  separate  and  apart  from  the  investments 
of  its  other  department  or  departments. 

Every  bank  shall  conduct  the  business  of  all  its  depart- 
ments in  one  building,  or  in  adjoining  buildings,  and  shall 
keep  entirely  separate  and  apart  in  each  department  the 
cash,  securities  and  property  belonging  to  such  department, 
and  shall  not  mingle  the  cash,  securities  and  property  of  one 
department  with  that  of  another. 

All  money  belonging  to  each  department,  whether 
cash  on  hand  or  with  other  banks,  and  the  investments 
made,  shall  be  held  solely  for  the  repayment  of  the  de- 
positors in  said  department,  until  all  depositors  of  such  de- 
partment shall  have  been  paid,  and  the  overplus  then  re- 
maining shall  be  applied  to  the  other  liabilities  of  such  bank. 


CORPORATIONS  IN  CALIFORNIA.  555 

Every  individual,  firm  or  corporation  doing  a  banking 
business  in  this  State  must,  on  all  its  window-signs  and 
in  advertising,  and  on  letterheads  and  other  stationery  on 
which  its  business  is  transacted,  use  the  word  "savings"  if  it 
conducts  a  savings  business,  or  the  word  "trust"  if  it  con- 
ducts a  trust  department,  and  the  word  "commercial"  if  it 
conducts  a  commercial  department. 

Every  corporation  heretofore  created  under  the  laws  of 
this  State,  doing  a  banking  business  therein,  and  which  has 
no  capital  stock,  may  elect  to  have  a  capital  stock,  and  may 
issue  certificates  of  stock  therefor ;  provided,  that  no  such 
corporation  shall  use  or  convert  any  moneys  or  funds  there- 
tofore belonging  to  it,  or  under  its  control,  into  capital 
stock;  but  such  funds  or  moneys  must  be  held  and  managed 
only  for  the  purposes  and  in  the  manner  for  which  they 
were  created.  Before  such  change  is  made,  a  majority  of 
the  members  of  such  corporation  present  at  a  meeting 
called  for  the  purpose  of  considering  the  proposition 
whether  it  is  best  to  have  a  capital  stock,  its  amount,  and 
the  number  of  shares  into  which  it  shall  be  divided,  must 
vote  in  favor  of  having  a  capital  stock,  fix  the  amount 
thereof,  and  the  number  of  shares  into  which  it  shall  be 
divided.  Notice  of  the  time  and  place  of  holding  such  meet- 
ing, and  its  object,  must  be  given  by  the  president  of  such 
corporation  by  mailing  notice  of  such  meeting  to  each  mem- 
ber of  such  corporation  at  his  last  known  post  office  address 
at  least  ten  days  prior  to  the  day  fixed  for  such  meeting, 
and  by  publication  in  some  newspaper  printed  and  pub- 
lished in  the  county,  or  city  and  county,  in  which 
the  principal  place  of  business  of  the  corporation  is 
situated,  at  least  once  a  week  for  three  successive  weeks 
prior  to  the  holding  of  the  meeting.  A  copy  of  the  pro- 
ceedings of  this  meeting,  giving  the  number  of  persons 
present,  the  votes  taken,  the  notice  calling  the  meeting,  the 
proof  of  its  publication,  the  amount  of  capital  actually  sub- 
scribed, and  by  whom,  all  duly  certified  by  the  president 
and  secretary  of  the  corporation,  must  be  filed  in  the  office  of 


556  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

the  Secretary  of  State  and  clerk  of  the  county  where  the 
articles  of  incorporation  are  filed.  Thereafter  such  corpora- 
tion is  possessed  of  all  the  rights  and  powers,  and  is  subject 
to  all  the  obligations,  restrictions,  and  limitations,  as  if  it 
had  been  originally  created  with  a  capital  stock. 

Any  bank  may  conduct  a  safe  deposit  department,  but 
shall  not  invest  more  than  one-tenth  of  its  capital  and  sur- 
plus in  such  safe  deposit  department. 

(1) — Sale  of  Assets. — Any  bank  may  sell  the  whole  or 
any  portion  of  its  assets  to  any  other  bank  which  may 
purchase  its  assets  after  obtaining  the  consent  of  the  stock- 
holders of  the  selling  and  of  the  purchasing  bank  holding  of 
record  at  least  two-thirds  of  the  issued  capital  stock  of  each 
of  such  corporations ;  such  consent  to  be  expressed  either  in 
writing  executed  and  acknowledged  by  such  stockholders 
and  attached  to  the  instrument  of  sale,  or  to  a  copy  thereof, 
or  by  vote  at  a  stockholders'  meeting  of  such  banks  called 
for  that  purpose. 

The  selling  and  purchasing  banks  may  for  such  purposes 
enter  into  an  agreement  of  sale  and  purchase,  which  agree- 
ment shall  contain  all  the  terms  and  conditions  connected 
with  the  sale  and  purchase  of  its  assets. 

Such  agreement  shall  contain  proper  provision  for  the 
payment  of  liabilities  of  the  selling  bank,  and  in  this  partic- 
ular shall  be  subject  to  the  approval  of  the  superintendent  of 
banks ;  and  shall  not  be  valid  until  such  approval  is  obtained. 
Such  agreement  may  contain  provisions  for  the  transfer  of 
all  deposits  to  the  purchasing  bank,  subject,  however,  to 
the  right  of  every  depositor  of  the  selling  bank  to  withdraw 
his  deposit  in  full  on  demand  after  such  transfer,  irrespec- 
tive of  the  terms  under  which  it  was  deposited  with  the 
selling  bank. 

(m) — General  Regulations. — Any  bank  receiving  trust 
funds  in  accordance  with  the  provisions  of  this  act  relating 
to  trust  companies  must  not  mingle  such  trust  funds  with 
the  other  assets  of  the  corporation,  and  such  funds  shall 


COBPOKATIONS  IN  CALIFORNIA.  ,  557 

not  be  carried  or  counted  as  any  part  of  the  lawful  reserve 
provided  for  in  this  act.  The  officers  of  any  bank  who 
knowingly  violate  or  consent  to  the  violation  of  this  pro- 
vision shall  be  guilty  of  a  felony. 

No  officer  or  employee  of  any  bank  shall,  directly  or  in- 
directly, for  himself  or  as  the  partner  or  agent  of  others, 
borrow  any  of  the  deposits  or  other  funds  of  such  bank,  nor 
shall  he  nor  any  director  become  an  indorser  or  surety  for 
loans  to  others  nor  in  any  manner  be  obligor  for  moneys  bor- 
rowed or  loaned  by  such  bank.  The  office  of  any  officer  or 
employee  who  acts  in  contravention  of  the  provisions  of  this 
section  shall  immediately  become  vacant,  and  he  shall  be 
guilty  of  a  misdemeanor. 

No  bank  shall  purchase  or  invest  its  capital  or  money  of 
its  depositors,  or  any  part  of  either,  in  the  shares  of  its  own 
capital  stock;  nor  loan  its  capital  or  the  money  of  its  de- 
positors, or  any  part  of  either,  on  the  shares  of  its  own  cap- 
ital stock,  unless  such  purchase  or  loan  shall  be  necessary 
to  prevent  loss  on  debts  previously  contracted  in  good  faith. 

Stock  thus  purchased  or  carried  shall,  within  six  months 
from  the  time  of  its  purchase,  be  sold  or  disposed  of  at  pub- 
lic or  private  sale. 

The  officers  of  any  bank  who  knowingly  violate  or  con- 
sent to  the  violation  of  this  provision  shall  be  guilty  of  a 
felony. 

No  director,  or  officer,  or  employee,  or  controlling  stock- 
holder of  any  bank  shall,  directly  or  indirectly,  for  himself 
or  as  the  partner  or  agent  of  others,  sell  or  transfer,  or  cause 
to  be  sold  or  transferred  to  the  bank  of  which  he  is  a  director, 
officer,  employee,  or  controlling  stockholder,  any  mortgage 
on  real  estate  or  contract  arising  from  the  sale  of  real  estate 
made  by  any  corporation  or  syndicate  in  which  such  director 
or  officer,  or  employee,  or  controlling  stockholder  is  person- 
ally or  financially  interested,  without  the  consent  in  writing 
of  the  superintendent  of  banks. 

Any  director,  or  officer,  or  employee,  or  controlling  stock- 
holder of  any  bank  who  knowingly  violates  or  consents  to 


558  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

the  violation  of  this  provision  shall  be  deemed  guilty  of  a 
felony. 

No  bank  receiving  deposits  of  money  shall  purchase,  agree 
to  purchase,  underwrite  or  guarantee  any  bond  issue  in 
excess  of  five  per  centum  of  its  assets,  except  bonds  of  the 
United  States,  of  the  State  of  California,  of  the  cities,  cities 
and  counties,  counties  or  school  districts  of  this  State. 

No  bank  shall  purchase,  or  invest  its  capital  or  money 
of  its  depositors,  or  any  part  of  either,  in  shares  of  corpora- 
tions, unless  such  purchase  shall  be  necessary  to  prevent 
loss  on  debts  previously  contracted  in  good  faith,  and  stock 
thus  purchased  or  carried  shall,  within  six  months  from  the 
time  of  its  purchase,  be  sold  or  disposed  of  at  public  or  pri- 
vate sale,  unless  permission  to  hold  said  stock  for  a  longer 
period  shall  be  obtained  from  the  superintendent  of  banks. 

The  officers  of  any  bank  who  knowingly  violate  or  consent 
to  the  violation  of  this  provision  shall  be  deemed  guilty  of 
a  felony. 

A  director,  officer,  agent,  or  employee  of  any  bank  who, 

First — Knowingly  receives  or  possesses  himself  of  any  of 
its  property  otherwise  than  in  payment  for  a  just  demand, 
and  with  intent  to  defraud,  omits  to  make  or  to  cause  or 
direct  to  be  made  a  full  and  true  entry  thereof  in  its  books 
and  accounts ;  or. 

Second — Concurs  in  omitting  to  make  any  material  entry 
thereof;  or, 

Third — Knowingly  concurs  in  making  or  publishing  any 
written  report,  exhibit  or  statement  of  its  affairs  or  pecu- 
niary condition  containing  any  material  statement  which  is 
false;  or, 

Fourth — Having  the  custody  or  control  of  its  books,  wil- 
fully refuses  or  neglects  to  make  any  proper  entry  in  the 
books  of  such  corporation  as  required  by  law,  or  to  exhibit 
or  allow  the  same  to  be  inspected  and  extracts  to  be  taken 
therefrom  by  the  superintendent  of  banks,  his  chief  deputy 
or  any  of  his  examiners,  shall  be  guilty  of  a  felony. 


CORPORATIONS  IN  CALIFORNIA.  559 

Any  officer,  director,  agent,  teller,  clerk,  or  employee  of 
any  bank  who  either, 

First — Knowingly  overdraws  his  accounts  with  such  bank, 
and  thereby  obtains  the  money,  notes  or  funds  of  any  such 
bank;  and, 

Second — Asks  or  receives  or  consents  or  agrees  to  receive 
any  commissions,  emolument,  gratuity  or  reward,  or  any 
money,  property  or  thing  of  value  or  of  personal  advantage, 
for  procuring  or  endeavoring  to  procure  for  any  person, 
firm  or  corporation  any  loan  from,  or  the  purchase  or  dis- 
count of  any  paper,  note,  draft,  check  or  bill  of  exchange, 
by  such  bank,  or  for  permitting  any  person,  firm  or  cor- 
poration to  overdraw  any  account  with  such  bank,  is  guilty 
of  a  felony. 

No  bank  mentioned  in  this  act  shall  make  any  contract 
with  any  of  its  depositors  whereby  the  stockholders'  liabil- 
ity provided  for  by  the  constitution  of  this  State  is  in  any 
manner  waived,  and  if  any  such  contract  shall  be  so  made, 
such  contract  shall  be  void. 

No  director,  officer,  agent,  or  servant  of  any  bank  shall, 
directly  or  indirectly,  for  his  own  personal  benefit,  purchase 
or  be  interested  in  the  purchase  of  any  of  the  obligations 
of  said  bank  for  a  less  sum  than  shall  appear  upon  the  face 
thereof. 

No  director,  officer,  agent,  or  servant  of  any  bank  shall, 
directly  or  indirectly,  for  his  own  personal  benefit,  purchase 
or  be  interested  in  the  purchase  of  any  of  the  assets  of  said 
bank,  for  a  less  sum  than  the  current  market  value  thereof. 
Every  person  violating  the  provisions  of  this  subdivision 
shall  be  guilty  of  a  misdemeanor. 

No  bank  shall  deposit  any  of  its  funds  with  any  other 
bank,  unless  such  other  bank  has  been  designated  as  a 
depositary  for  its  funds  by  the  vote  of  a  majority  of  the 
directors  or  trustees  of  the  bank  making  the  deposit,  exclu- 
sive of  the  vote  of  any  director  or  trustee  who  is  an  officer, 
director,  or  trustee  of  the  depositary  so  designated. 


560  BUSINESS   LAWS  FOR  BUSINESS  MEN. 

No  bank  shall  hereafter  make  a  loan  secured  by  the  stock 
of  another  bank,  if  by  making  such  loan  the  total  stock  of 
such  other  bank  held  by  such  loaning  bank  as  collateral 
will  exceed  in  the  aggregate  ten  per  centum  of  the  capital 
stock  of  such  other  bank;  provided,  that  no  loan  upon  the 
capital  stock  of  any  bank  shall  be  made  unless  such  bank 
has  been  in  existence  for  two  or  more  years  and  has  earned 
and  paid  a  dividend  upon  its  capital  stock. 

Interest  unpaid,  although  due  or  accrued,  on  debts  owing 
to  any  bank,  shall  not  be  included  in  calculation  of  its 
profits  previous  to  a  dividend. 

No  bank  shall  invest  or  loan  more  than  five  per  centum 
of  its  assets  in  any  one  bond  issue,  except  bonds  of  the 
United  States,  of  the  State  of  California,  of  the  counties, 
cities  and  counties,  cities  or  school  districts  of  this  State. 

No  bank  shall  make  any  loan  on  real  estate  except  it  be 
a  first  lien,  but  this  provision  shall  not  prevent  the  accept- 
ance of  a  second  lien  to  secure  the  payment  of  a  debt  pre- 
viously contracted  in  good  faith. 

(n) — Examination  of  National  Banks.  —  Any  national 
bank  of  this  State  receiving  the  deposits  of  banks  organized 
and  conducting  business  under  this  act,  must,  at  the  re- 
quest of  the  superintendent  of  banks,  submit  to  an  exami- 
nation by  him,  or  his  duly  appointed  examiners,  should 
the  superintendent  of  banks  in  his  discretion  deem  it  neces- 
sary or  desirable  that  such  examination  be  made ;  and  the 
expense  of  such  examination  shall  be  paid  by  such  national 
bank;  and  if  any  such  national  bank  shall  refuse  to  permit 
such  examination  to  be  made  by  the  superintendent  of 
banks,  then  the  superintendent  of  banks  shall  notify  in  writ- 
ing any  and  all  banks  depositing  its  funds  with  such  national 
bank,  to  withdraw  its  deposits  therefrom,  and  such  bank 
shall  comply  with  such  order,  and  failure  so  to  do  shall  be 
a  misdemeanor. 

Every  bank  shall  post  in  a  conspicuous  place  in  its  bank- 
ing room  the  last  certificate  obtained  from  the  superintendent 


CORPORATIONS  IN  CALIFORNIA.  561 

of  banks.     Every  bank  that  fails  to  comply  with  the  pro- 
visions of  this  section  is  guilty  of  a  misdemeanor. 

(o) — Money  Belonging  to  Estates. — Any  court  having 
appointed  and  having  jurisdiction  of  any  executor,  admin- 
istrator, guardian,  assignee,  receiver,  depositary  or  trustee, 
upon  the  application  of  such  executor,  administrator,  guar- 
dian, assignee,  receiver,  depositary  or  trustee,  or  upon  the 
application  of  any  person  having  an  interest  in  the  estate 
administered  upon  by  such  officer  or  trustee,  after  notice 
to  other  parties  in  interest  as  the  court  may  direct,  and' 
after  a  hearing  upon  such  application,  may  authorize  such 
officer  or  trustee  to  deposit  any  money  then  in  his  hands  as 
such  officer  or  trustee,  or  which  may  thereafter  come  into 
his  hands,  and  until  the  further  order  of  the  court,  in  any 
bank  organized  under  the  laws  of  the  State  of  California; 
and  upon  such  deposit  being  made,  the  officer  or  trustee  so 
depositing  the  same  shall  thereafter  and  while  such  moneys 
remain  on  deposit  in  such  bank,  be  relieved  and  discharged 
from  all  liability  and  responsibility  therefor,  and  the  bond 
required  of  such  officer  or  trustee  given  upon  his  appoint- 
ment shall  be  thereupon  by  said  Court  reduced  to  such  an 
amount  as  the  Court  may  deem  reasonable;  such  deposit 
shall  be  repaid  only  upon  the  orders  of  said  Court,  and  shall 
be  a  preferred  claim  against  such  bank  and  be  paid  in  full 
before  any  other  depositor  of  such  bank  shall  have  been 
paid. 

(p) — Savings  Banks.  —  Every  savings  bank  must  have 
actually  paid  in  a  capital  stock  of  not  less  than  twenty-five 
thousand  dollars,  or,  if  organized  without  capital  stock,  a 
reserve  fund  of  at  least  one  million  dollars,  and  until  said 
sum  of  twenty-five  thousand  dollars  or  said  sum  of  one  mil- 
lion dollars  shall  be  actually  paid  in,  the  superintendent  of 
banks  shall  refuse  to  issue  the  certificate  required  by  this 
act ;  provided  that  nothing  herein  shall  be  construed  to  affect 
the  provisions  of  this  act  relative  to  the  capital  stock  re- 
quired of  banks  doing  a  departmental  business. 


/ 

562  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Savings  banks  may  purchase,  hold,  and  convey  real"  and 
personal  property  as  follows : 

1.  The  lot  and  building  in  which  the  business  of  the  bank 
is  carried  on ;  such  a  lot  and  building  shall  not  cost  the  sav- 
ings bank  an  amount  exceeding  its  capital  and  surplus ;  and 
the  authority  of  a  two-thirds  vote  of  a  full  board  of  direc- 
tors shall  be  necessary  to  authorize  the  purchase  or  con- 
struction thereof. 

2.  Such  as  may  have  been  mortgaged,  pledged,  or  con- 
veyed to  it  in  trust  for  its  benefit  in  good  faith,  for  money 
loaned  in  pursuance  of  the  regular  business  of  the  corpora- 
tion. 

3.  Such  as  may  have  been  purchased  at  sales  under 
pledges,  mortgages  or  deeds  of  trust  made  for  its  benefit  for 
money  so  loaned,  and  such  as  may  be  conveyed  to  it  by  bor- 
rowers in  satisfaction  and  discharge  of  loans  made  thereon. 

No  savings  bank  shall  purchase,  hold,  or  convey  real 
estate  in  any  other  case  or  for  any  other  purpose ;  and  all  real 
estate  described  in  subdivision  three  of  this  section  must  be 
sold  by  the  bank  within  ten  years  after  the  title  thereto  is 
vested  in  it  by  purchase  or  otherwise,  unless  permission  to 
hold  said  real  estate  for  a  longer  period  be  given  by  the 
superintendent  of  banks  in  writing.  Parcels  of  real  estate 
not  sold  within  ten  years,  or  extension  of  said  period  as 
above  provided,  may  be  purchased  by  any  persons  or  parties 
wanting  them,  at  the  price  to  be  determined  by  arbitration 
of  three  persons  appointed  by  the  Superior  Court  as  ap- 
praisers, at  the  request  of  the  would-be  purchaser. 

No  savings  bank  shall  purchase,  own,  or  sell  personal 
property,  except  such  as  may  be  requisite  for  its  immediate 
accommodation  for  the  convenient  transaction  of  its  busi- 
ness, and  mortgages  on  real  estate,  bonds,  securities  or  evi- 
dences of  indebtedness,  public  or  private,  gold  and  silver 
bullion,  and  United  States  mint  certificates  of  ascertained 
value,  and  evidences  of  debt  issued  by  the  United  States. 

No  savings  bank  shall  purchase,  hold,  or  convey  bonds, 
securities,  or  evidences  of  indebtedness,  public  or  private, 
except  as  follows : 


CORPORATIONS  IN  CALIFORNIA.  563 

(a)  Bonds  or  interest-bearing  notes  or  obligations  of  the 
United  States,  or  those  for  which  the  faith  of  the  United 
States  is  pledged  for  the  payment  of  interest  and  principal. 

(b)  Bonds  of  this  State. 

(c)  Bonds  of  any  State  in  the  United  States  that  have 
not,  within  five  years  previous  to  making  such  investment 
by  such  bank,  defaulted  in  the  payment  of  any  part  of  either 
principal  or  interest  thereof. 

(d)  Bonds  of  any  city,  county,  city  and  county,  town, 
township,  or  school  district  of  this  State. 

(e)  Bonds  of  any  city,  town  or  county,  which  has  in  each 
case,  at  the  time  of  the  investment,  more  than  twenty  thou- 
sand inhabitants,  as  ascertained  by  the  United  States  or 
State  census  made  next  preceding  such  investment,  in  any 
of  the  States  of  the  United  States,  other  than  in  the  State 
of  California,  issued  pursuant  to  the  authority  of  any  law  of 
such  States ;  provided,  the  entire  bonded  indebtedness  of 
such  city  or  county  or  town  shall  not  exceed  five  per  centum 
of  the  assessed  value  of  the  taxable  property  therein,  includ- 
ing the  issue  of  bonds  in  which  said  investment  is  made  as 
shown  by  the  last  assessment  preceding  the  investment ;  and 
provided,  further,  that  such  city,  town,  or  county,  or  State 
in  which  it  is  situated  has  not  defaulted  in  the  payment  of 
any  part  of  either  principal  or  interest  thereon  within  five 
years  previous  to  making  such  investment. 

(f)  First  mortgage  or  underlying  bonds  of  any  steam 
railway,  the  income  of  which  is  sufficient  to  pay  all  operating 
expenses  and  fixed  charges,  and  which  is  completed  and 
operated,  wholly  or  in  part,  in  any  of  the  States  of  the 
United  States. 

(g)  Bonds  of  street  railroads,  water,  light,  light  and 
power,  gas,  and  other  public  utility  and  industrial  corpora- 
tions. All  bonds  authorized  for  investment  by  this  section 
shall  be  secured  by  a  mortgage  or  trust  deed,  which  is,  at 
the  time  of  making  such  investment,  (1)  a  first  or  under- 
lying mortgage  or  trust  deed  of  the  corporation  issuing 
said  bonds,  or  (2)  a  refunding  mortgage  or  trust  deed  used 


564  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

to  retire  all  prior  lien  mortgage  debts  of  said  corporation 
outstanding  at  the  time  of  making  said  investment ;  pro- 
vided, that  the  income  of  such  corporation  is  sufficient  to 
pay  all  operating  expenses  and  fixed  charges,  and  such 
income  shall  have  been  so  sufficient  for  the  term  of  three 
years  preceding  the  issuance  of  such  bonds,  or  that  pay- 
ment of  its  said  bonds  have  been  guaranteed  by  a  corpora- 
tion that  has  paid  all  its  operating  expenses  and  fixed 
charges  for  a  period  of  three  years  prior  to  guaranteeing 
the  payment  of  such  bonds. 

(h)  First  mortgage  bonds  or  deeds  of  trust  issued  by  real 
estate  corporations ;  provided,  that  said  bond  issue  shall  not 
exceed  sixty  per  centum  of  the  market  value  of  the  real 
estate  taken  as  security. 

No  savings  bank  shall  purchase  the  bonds  of  any  corpora- 
tion or  make  a  loan  on  the  bonds  of  any  corporation,  if  the 
franchise  of  such  corporation  expires  prior  to  the  maturity 
of  its  bonds,  or  if  the  franchise  or  special  privilege  granted 
to  such  corporation  by  any  city,  county,  or  city  and  county, 
expires  before  the  maturity  of  such  bond  issue. 

No  savings  bank  shall,  directly  or  indirectly,  deal  or  trade 
in  real  or  personal  property  in  any  other  case  or  for  any 
other  purpose  than  is  authorized  by  this  act,  and  shall  not 
contract  any  debt  or  liability  for  any  purpose  whatever 
other  than  for  deposits,  except  as  in  this  section  provided. 

Savings  banks  may  pay  regular  depositors,  when  re- 
quested by  them,  by  draft  upon  deposits  to  the  credit  with 
their  banks,  and  charge  current  rate  of  exchange  for  such 
drafts. 

No  savings  bank  shall  borrow  money,  or  pledge  or  hypoth- 
ecate any  of  its  securities,  except  to  meet  the  immediate 
demands  of  its  own  depositors,  and  then  only  in  pursuance 
of  a  resolution  adopted  by  a  vote  of  a  majority  of  its  board 
of  directors,  duly  entered  upon  their  minutes,  wherein  shall 
be  recorded  the  ayes  and  nays  upon  each  vote;  also  with 
the  written  approval  of  the  superintendent  of  banks,  and  he 
shall  have  the  authority  to  fix  the  amount  to  be  borrowed, 


CORPORATIONS  IN  CALIFORNIA.  565 

and  the  term  and  rate  of  interest  thereon ;  provided,  how- 
ever, that  savings  banks  may,  in  the  manner  authorized  by 
law,  and  without  the  written  approval  of  the  superintendent 
of  banks,  borrow  the  public  moneys  of  the  State,  counties, 
cities  and  counties,  and  towns,  and  receive  such  public 
moneys  on  deposit. 

Savings  banks  may  issue  general  certificates  of  deposit, 
which  are  transferable,  as  in  other  cases,  by  indorsement 
and  delivery;  may  issue,  when  requested  by  the  depositor, 
special  certificates,  acknowledging  the  deposit  by  the  person 
therein  named  of  a  specified  sum  of  money,  and  expressly 
providing  on  the  face  of  such  certificate  that  the  sum  so 
deposited  and  therein  named  may  be  transferred  only  on  the 
books  of  the  bank ;  payment  thereafter  made  by  the  bank  to 
the  depositor  named  in  such  certificate,  or  to  his  assignee 
named  upon  the  books  of  the  bank,  or  in  case  of  death, 
to  the  legal  representative  of  such  person,  of  the  sum  for 
which  such  special  certificate  was  issued,  shall  discharge  the 
bank  from  all  further  liability  on  account  of  the  money  so 
paid. 

All  time  certificates  of  deposit,  issued  by  a  savings  bank, 
shall  be  subject  to  the  same  limitations  and  conditions  as 
applied  to  other  deposits,  and  notice  thereof  shall  be  given 
by  the  words,  "Subject  to  conditions  of  agreement  with 
depositors,"  printed  on  the  face  of  the  certificate  issued. 

Savings  banks  may  prescribe  by  their  by-laws,  or  by  con- 
tract with  depositors,  the  time  and  conditions  on  which  re- 
payment is  to  be  made  to  depositors,  except  as  in  this  act 
otherwise  prohibited ;  but  whenever  there  is  any  call  by 
depositors  for  repayment  of  a  greater  amount  than  the  bank 
may  have  disposable  for  that  purpose,  the  directors  or  offi- 
cers thereof  must  not  make  any  new  loans  or  investments 
of  the  funds  of  the  depositors,  or  of  earnings  thereof,  until 
such  excess  of  call  has  ceased.  The  directors  of  any  such 
bank,  having  no  capital  stock,  must  retain,  on  each  dividend 
day,  at  least  ten  per  centum  of  the  net  profits  of  the  bank, 
to  constitute  a  reserve  fund,  which  must  be  invested  in  the 


566  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

same  manner  as  other  funds  of  the  bank,  and  must  be  used 
toward  paying  any  losses  which  the  bank  may  sustain  in 
pursuing  its  lawful  business.  The  bank  may  provide  by  its 
by-laws  for  the  disposal  of  any  excess  in  the  reserve  fund, 
as  provided  for  in  this  act,  and  the  final  disposal,  upon  the 
dissolution  of  the  bank,  of  the  reserve  fund,  or  of  the  re- 
mainder thereof,  after  payment  of  losses. 

No  director  or  officer  of  any  savings  bank  must,  directly 
or  indirectly,  for  himself  or  as  the  partner  or  agent  of  others, 
borrow  any  of  the  deposits  or  other  funds  of  such  bank,  nor 
must  become  an  indorser  or  surety  for  loans  to  others, 
nor  in  any  manner  be  obligor  for  moneys  borrowed  of  or 
loaned  by  such  bank.  The  office  of  any  director  or  officer 
who  acts  in  contravention  of  the  provisions  of  this  section 
immediately  thereupon  becomes  vacant,  and  every  director 
or  officer  authorizing  or  consenting  to  such  loan,  and  the 
person  who  receives  such  loan,  shall  severally  be  guilty  of 
a  misdemeanor. 

Receiving  deposits,  issuing  certificates  of  deposit,  checks, 
and  bills  of  exchange,  and  the  like,  in  the  transaction  of  the 
business  of  savings  banks,  must  not  be  construed  to  be  the 
creation  of  debt  within  the  meaning  of  the  phrase,  "create 
debt,"  in  section  309  of  the  Civil  Code  and  as  provided  for 
in  this  act. 

No  savings  bank  shall  loan  money  except  on  adequate 
security  of  real  or  personal  property,  and  no  such  loan  shall 
be  made  for  a  period  longer  than  ten  years ;  provided,  that 
no  loans  shall  be  made  on  unsecured  notes. 

No  savings  bank  shall  invest  or  loan  more  than  five  per 
centum  of  its  assets  on  any  one  bond  issue,  except  bonds  of 
the  United  States,  of  the  State  of  California,  of  the  counties, 
cities  and  counties,  cities  or  school  districts  of  this  State. 

No  savings  bank  shall  loan  money  to  exceed  ninety  per 
centum  of  the  market  value  of  bonds  specified  in  subdivisions 
(a),  (b),  (c)  and  (d),  of  subdivision  three  of  section  sixty- 
one  of  this  act,  and  no  more  than  eighty-five  per  centum  of 
the  market  value  of  bonds  specified  in  subdivision  (e)  of 


CORPORATIONS  IN  CALIFORNIA.  567 

subdivision  three  of  section  sixty-one  of  this  act,  and  no 
more  than  seventy-five  per  centum  of  the  market  value  of 
bonds  specified  in  subdivisions  (f)  and  (g)  of  subdivision 
three  of  section  sixty -one  of  this  act,  and  no  more  than  sixty- 
five  per  centum  of  the  market  value  of  personal  property 
and  stocks  of  corporations  or  banks ;  provided,  however, 
that  no  loan  shall  be  made  upon  the  capital  stock  of  any 
corporation  or  bank  unless  such  corporation  or  bank  has 
been  in  existence  for  two  or  more  years  and  has  earned  and 
paid  a  dividend  on  its  capital  stock. 

No  savings  bank  shall  make  any  loan  on  the  security  of 
real  estate  except  it  be  a  first  lien  and  in  no  event  to  exceed 
sixty  per  centum  of  the  market  value  of  any  piece  of  real 
estate  to  be  taken  as  security,  except  for  the  purpose  of  facil- 
itating the  sale  of  property  owned  by  the  savings  bank; 
provided,  that  a  second  lien  may  be  accepted  to  secure  the 
repayment  of  a  debt  previously  contracted  in  good  faith. 

No  savings  bank  shall  purchase,  invest,  or  loan  its  capital 
or  the  money  of  its  depositors,  or  any  part  of  either,  in  min- 
ing shares  or  stock. 

No  savings  bank  shall  hereafter  make  a  loan  secured  by 
the  stock  of  another  bank,  if  by  making  such  loan  the  total 
stock  of  such  other  bank  held  by  such  loaning  bank  as  col- 
lateral will  exceed  in  the  aggregate  ten  per  centum  of  the 
capital  stock  of  such  other  bank. 

Any  president  or  managing  officer  who  knowingly  con- 
sents to  a  violation  of  the  above  provisions  shall  be  deemed 
guilty  of  a  felony. 

Savings  banks  must  carry  in  cash,  or  its  equivalent,  an 
amount  equal  to  four  per  centum  of  its  deposit  liabilities, 
of  which  two  per  centum  of  such  liabilities  shall  be  in  coin 
or  currency  of  standard  value  in  its  own  keeping.  The 
amount  thus  carried  shall  be  called  the  lawful  money  re- 
serve. , 

No  new  loan  shall  be  made  during  any  deficiency  in  the 
lawful  money  reserve. 


568  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Deposits  with  commercial  banks  and  trust  companies,  on 
open  account,  to  facilitate  business  transactions,  as  pro- 
vided in  this  section,  shall  be  permitted,  and  shall  not  be 
construed  as  loans. 

Not  more  than  five  per  centum  of  the  deposits  of  any  sav- 
ings bank  shall  be  deposited  with  any  one  bank. 

Every  savings  bank,  and  the  business  of  every  savings 
department  of  every  other  bank,  must  be  conducted  under 
and  in  accordance  with  the  provisions  of  this  act. 

(q)  —  Commercial  Banks.  —  No  commercial  bank  shall 
make  any  loans  to  any  person,  company,  corporation,  or 
firm  to  an  amount  exceeding  one-tenth  part  of  the  capital 
stock  of  such  bank  actually  paid  in  and  surplus ;  provided, 
however,  that  a  bank  may  loan  to  any  person,  company,  cor- 
poration or  firm  a  sum  not  exceeding  twenty-five  per  centum 
of  its  capital  stock  actually  paid  in  and  surplus  upon  security 
worth  at  least  fifteen  per  centum  more  than  the  amount  of  its 
loans ;  or  it  may  loan  ten  per  centum  of  such  capital  and 
surplus  as  first  above  provided,  and  a  further  sum  not  ex- 
ceeding fifteen  per  centum  of  such  capital  and  surplus  upon 
security  worth  at  least  fifteen  per  centum  more  than  the 
amount  of  such  loan  so  secured ;  except  that  a  commercial 
bank  may  buy  from,  or  discount  for  any  person,  company, 
corporation,  or  firm,  or  loan  upon  bills  of  lading,  warehouse 
receipts  and  bills  of  exchange,  drawn  in  good  faith  against 
actual  existing  value  or  against  commercial  or  business 
paper  actually  owned  b.y  the  person  negotiating  the  same. 

No  loan  shall  be  made  by  any  commercial  bank  upon  the 
securities  of  one  or  more  corporations,  the  payment  of  which 
is  undertaken,  in  whole  or  in  part,  severally,  but  not  jointly, 
by  two  or  more  individuals,  firms,  or  corporations : 

If  the  borrowers  or  underwriters  be  obligated  absolutely 
or  contingently  to  purchase  the  securities,  or  any  of  them, 
collateral  to  such  loan,  unless  the  borrowers  or  underwriters 
shall  have  paid  on  account  of  the  purchase  of  such  securities 
an   amount   in   cash,   or   its   equivalent,   equal   to   at   least 


CORPORATIONS  IN  CALIFORNIA.  569 

twenty-five  per  centum  of  the  several  amounts  for  which 
they  remain  obligated  in  completing  the  purchase  of  such 
securities ; 

If  the  commercial  bank  making  such  loan  be  liable, 
directly  or  indirectly,  or  contingently,  for  the  repayment  of 
such  loan  or  any  part  thereof; 

If  its  term,  including  any  renewal  thereof  by  agreement, 
express  or  implied,  exceed  the  period  of  one  year ; 

Or  to  an  amount  under  any  circumstances  in  excess  of 
twenty-five  per  centum  of  the  capital  and  surplus  of  the 
commercial  bank  making  such  loan. 

Every  commercial  bank  which  is  now  transacting,  or 
which  may  hereafter  transact  business,  shall  have  actually 
paid  in  a  capital  stock  of  not  less  than  twenty-five  thousand 
dollars;  and  until  said  sum  of  twenty-five  thousand  dollars 
shall  be  actually  paid  in,  the  superintendent  of  banks  shall 
not  issue  the  certificate  required  by  section  twenty-four  of 
this  act;  provided,  that  nothing  herein  shall  be  construed  to 
affect  the  provisions  of  section  twenty-three  of  this  act  rela- 
tive to  the  capital  stock  required  of  banks  doing  a  depart- 
mental business. 

No  commercial  bank  shall  loan  any  of  its  funds  to  any  of 
its  directors  unless  such  loan  shall  first  have  been  approved 
by  a  two-thirds  vote  of  its  board  of  directors,  on  which  vote 
the  borrowing  director  shall  not  participate,  and  the  fact 
of  making  such  loan,  the  name  of  the  director  borrowing 
the  same,  the  time  when  the  same  shall  become  due,  the  rate 
of  interest  thereon,  and  the  amount,  value,  and  character  of 
the  security  pledged  therefor,  if  any,  shall  be  forthwith  for- 
warded by  the  cashier  of  such  bank  to  the  superintendent 
of  banks ;  and  if  the  superintendent  of  banks  shall  disap- 
prove of  such  loan,  he  shall  immediately  notify  such  bank  of 
his  disapproval  thereof,  and  such  bank  shall  forthwith  col- 
lect such  loan ;  provided,  however,  that  the  total  loans  to  all 
directors  of  such  bank  shall  not  at  any  one  time  exceed 
thirty  per  cent  of  the  capital  and  surplus  of  such  bank ;  and 
provided,  further,  that  each  bank  having  any  loan  or  loans 


570  BUSINESS  LAWS   FOR  BUSINESS  MEN. 

outstanding  to  any  of  its  directors  shall  once  each  month 
report  in  writing  to  the  superintendent  of  banks  the  name 
of  each  director  to  whom  such  loan  is  made,  the  amount  of 
such  loan,  the  rate  of  interest  thereon,  the  time  when  the 
same  shall  fall  due,  and  the  security  pledged  therefor,  if 
any.  Any  officer  or  director  of  any  commercial  bank  vio- 
lating any  of  the  provisions  of  this  section  shall  be  guilty 
of  a  felony. 

(r) — ^Trust  Companies. — Any  corporation  which  has  been 
or  shall  be  incorporated  under  the  general  incorporation 
laws  of  this  State,  authorized  by  its  articles  of  incorporation 
to  act  as  executor,  administrator,  guardian,  assignee,  re- 
ceiver, depositary  or  trustee,  and  having  a  capital  of  not 
less  than  two  hundred  thousand  dollars  actually  paid  in,  in 
cash,  may  be  appointed  to  act  in  such  capacity  in  like  man- 
ner as  individuals  and  shall  be  known  as  a  trust  company. 
In  all  cases  in  which  it  is  required  that  an  executor,  admin- 
istrator, guardian,  assignee,  receiver,  depositary,  or  trustee, 
shall  qualify  by  taking  and  subscribing  an  oath,  or  in  which 
an  affidavit  is  required,  it  shall  be  a  sufficient  qualification 
by  such  corporation  if  such  oath  shall  be  taken  and  sub- 
scribed or  such  affidavit  made  by  the  president  or  secretary 
or  manager  or  trust  officer  thereof,  and  such  officer  shall  be 
liable  for  the  failure  of  such  trust  company  to  perform  any 
of  the  duties  required  by  law  to  be  performed  by  individuals 
acting  in  like  capacity  and  subject  to  like  penalties;  and 
such  trust  company  shall  be  liable  for  such  failure  to  the 
full  amount  of  its  capital  stock ;  provided,  any  such  appoint- 
ment as  guardian  shall  apply  to  the  estate  only,  and  not  to 
the  person.  Such  trust  company  shall  be  entitled  to  and 
shall  be  allowed  proper  compensation  for  all  the  services 
performed  by  them  under  the  foregoing  provisions  of  this 
act ;  but  such  compensation  shall  not  exceed  that  allowed  to 
natural  persons  for  like  services. 

Any  court,  having  appointed  and  having  jurisdiction  of 
any  executor,   administrator,   guardian,   assignee,   receiver. 


CORPORATIONS  IN  CALIFORNIA.  571 

depositary,  or  trustee,  upon  the  application  of  such  officer 
or  trustee,  or  upon  the  application  of  any  person  having  an 
interest  in  the  estate  administered  by  such  officer  or  trustee, 
after  notice  to  the  other  parties  in  interest  as  the  Court  may 
direct,  and  after  a  hearing  upon  such  application,  may 
authorize  such  officer  or  trustee  to  deposit  any  moneys  then 
in  his  hands,  or  which  may  come  into  his  hands  thereafter, 
and  until  the  further  order  of  said  Court,  with  any  such  trust 
company ;  and  upon  deposit  of  such  money,  and  its  receipt 
and  acceptance  by  such  trust  company,  the  said  officer  or 
trustee  shall  be  discharged  from  further  care  or  responsi- 
bility therefor.  Such  deposits  shall  be  paid  out  only  upon 
the  orders  of  said  Court. 

It  shall  be  lawful  for  any  public  administrator  to  deposit 
with  any  trust  company  having  not  less  than  two  hundred 
thousand  dollars  paid-up  capital,  doing  business  in  the 
county,  or  city  and  county,  in  which  he  is  acting  as  such 
administrator,  any  and  all  moneys  of  any  estate  upon  which 
he  is  administering,  not  required  for  the  current  expenses 
of  the  administration ;  provided,  that  such  corporation  de- 
posit with  the  State  Treasurer  the  securities  required  by  this 
act.  Such  deposits  shall  relieve  the  public  administrator 
from  depositing  with  the  County  Treasurer  the  moneys  so 
deposited  with  such  corporation.  Moneys  so  deposited  by  a 
public  administrator  may  be  drawn,  upon  the  order  of  such 
administrator,  countersigned  by  a  judge  of  a  Superior  Court, 
when  required  for  the  purpose  of  administration,  or  other- 
wise. 

Whenever,  in  the  judgment  of  any  Court  having  jurisdic- 
tion of  any  estate  in  process  of  administration  by  any  exe- 
cutor, administrator,  guardian,  assignee,  receiver,  deposi- 
tary, or  trustee,  and  after  such  notice  to  the  parties  in  inter- 
est as  the  Court  shall  direct,  and  after  a  hearing  on  such 
application,  the  said  Court  may  order  the  said  officer  or 
trustee  to  deposit  with  any  such  trust  company,  for  safe 
keeping,  such  portion  or  all  of  the  personal  assets  of  said 
estate  as  it  shall  deem  proper;  and  thereupon  said  Court 


572  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

shall,  by  an  order  of  record,  reduce  the  bond  to  be  given  or 
theretofore  given  by  such  officer  or  trustee,  so  as  to  cover 
only  the  estate  remaining  in  the  hands  of  said  officer  or 
trustee ;  and  the  property  as  deposited  shall  thereupon  be 
held  by  such  trust  company,  under  the  orders  and  directions 
of  said  Court.  Any  Court  having  jurisdiction  of  an  estate 
being  administered  by  a  public  administrator,  may  direct 
such  public  administrator  to  deposit  all  or  any  part  of  the 
moneys  of  the  estate  not  required  for  the  current  expenses 
of  the  administration,  with  any  such  trust  company  doing 
business  in  the  county,  or  city  and  county,  where  such  pub- 
lic administrator  is  acting. 

Such  trust  company  shall  not  be  required  to  give  any 
bond  or  security  in  case  of  any  appointment  hereinbefore 
provided  for,  except  as  hereinafter  provided,  but  shall  be 
responsible  for  all  investments  which  shall  be  made  by  it  of 
the  funds  which  may  be  entrusted  to  it  for  investment  by 
such  Court,  and  shall  be  liable  as  natural  persons  in  like  posi- 
tions now  are,  and  as  hereinafter  provided. 

Such  trust  company  shall  pay  interest  upon  all  moneys 

*  held  by  it  as  trustee,  by  virtue  of  this  act,  at  such  rate  as 

may  be  agreed  upon  at  the  time  of  its  acceptance  of  any 

such  appointment,  or  as  shall  be  provided  by  the  order  of 

the  Court. 

Each  trust  company,  before  accepting  any  such  appoint- 
ment or  deposit,  shall  deposit  with  the  Treasurer  of  State, 
for  the  benefit  of  the  creditors  of  said  trust  company,  the 
sum  of  one  hundred  thousand  dollars  ($100,000),  in  bonds 
of  the  United  States,  or  municipal  bonds  of  this  State,  or  of 
any  county,  or  city,  city  and  county,  or  school  district 
thereof,  or  in  mortgages  on  improved  and  productive  real 
estate  in  this  State,  being  first  liens  thereon,  and  the  real 
estate  being  worth  at  least  twice  the  amount  loaned  thereon ; 
said  bonds  or  mortgages  to  be  approved  by  the  superintend- 
ent of  banks.  The  bonds  and  securities  so  deposited  may 
be  exchanged  from  time  to  time  for  other  securities,  receiv- 
able  as   aforesaid.     Said   bonds   of  the  United   States,  or 


CORPORATIONS  IN  CALIFORNIA.  573 

municipal  bonds  of  this  State,  or  of  any  county,  city,  city 
and  county,  or  school  district  thereof,  to  be  registered  in  the 
name  of  said  Treasurer,  officially,  and  all  said  securities  to 
be  subject  to  sale  and  transfer,  and  to  the  disposal  of  the 
proceeds  by  said  Treasurer,  only  on  the  order  of  a  court  of 
competent  jurisdiction  and  as  hereinafter  provided.  The 
State  shall  be  responsible  for  the  safe  return  of  such  secur- 
ities deposited  with  the  Treasurer  of  the  State  under  this 
section. 

Any  such  trust  company,  having  a  paid-up  capital  in 
excess  of  two  hundred  thousand  dollars,  may  be  permitted 
by  the  superintendent  of  banks  to  mortgage  any  improved 
and  productive  real  estate  owned  by  it,  in  excess  of  said 
amount,  to  the  Treasurer  of  State,  for  such  sum  as  the  said 
superintendent  of  banks  may  determine,  and  such  mortgage 
may  be  deposited  with  said  Treasurer,  and  when  so  depos- 
ited it  shall  be  included  in  the  amount  of  securities  herein- 
above required  to  be  deposited  with  said  Treasurer  for  the 
benefit  of  the  creditors  of  said  trust  company. 

So  long  as  the  trust  company  so  depositing  shall  continue 
solvent,  it  shall  be  permitted  to  receive  from  said  Treasurer 
the  interest  or  dividends  on  said  deposits,  and  whenever  any 
trust  company  receives  trust  funds  as  such  trustee  in  excess 
of  five  hundred  thousand  dollars,  it  shall  deposit  with  the 
State  Treasurer  securities  mentioned  in  section  96  of  this 
act,  to  be  approved  by  the  superintendent  of  banks,  in  the 
amount  of  another  one  hundred  thousand  dollars,  and  for 
each  five  hundred  thousand  dollars  of  such  trust  funds  there- 
after received,  an  additional  deposit  of  fifty  thousand  dollars 
of  such  securities  likewise  approved  shall  be  made  with  the 
said  State  Treasurer ;  provided,  however,  that  no  trust  com- 
pany shall  be  required  to  deposit  more  than  one  million  dol- 
lars of  such  securities. 

The  State  shall  be  responsible  for  the  safe  return  of  such 
securities  deposited  with  the  Treasurer  of  the  State  under 
this  section. 


574  BUSINESS  I^VWS  FOR  BUSINESS  MEN. 

When  any  part  of  such  deposit  with  the  State  Treasurer  is 
made  in  bonds  and  mortgages,  it  shall  be  accompanied  by 
full  abstracts  of  titles  and  searches,  or  by  certificates  of  title 
issued  by  a  person,  company  or  corporation,  whose  business 
or  objects  are  to  make  searches  of  titles  and  issue  certificates 
of  titles,  and  which  said  person,  company  or  corporation 
shall  be  one  designated  or  approved  by  said  superintendent 
of  banks,  and  shall  be  examined  and  approved  by  or  under 
the  direction  of  the  said  superintendent  of  banks.  The  fees 
for  an  examination  of  title  by  counsel  to  be  paid  by  the  trust 
company  making  the  deposit,  shall  not  exceed  twenty  dollars 
for  each  mortgage,  and  the  fee  for  each  appraiser,  not  ex- 
ceeding two,  besides  expenses,  shall  be  five  dollars  for  each 
mortgage. 

Before  the  superintendent  of  banks  issues  his  certificate 
to  any  trust  company,  there  must  be  filed  in  his  oflEice  the  affi- 
davit of  a  majority  of  its  board  of  directors  or  the  persons 
named  in  said  articles  as  the  first  directors  of  the  corporation 
that  at  least  two  hundred  thousand  dollars  of  the  capital 
stock  has  actually  been  subscribed  and  paid  in  to  a  person 
named  in  such  affidavit  for  the  benefit  of  the  corporation. 

On  making  the  report  required  by  the  terms  of  this  act, 
every  trust  company  shall,  in  addition  to  the  other  facts  to 
be  reported  on,  furnish  a  list  and  brief  description  of  the 
trusts  held  by  such  corporation,  the  source  of  the  appoint- 
ment thereto,  and  the  amount  of  real  and  personal  estate 
held  by  such  trust  company  by  virtue  thereof;  except  that 
mere  mortgage  trusts,  wherein  no  action  has  been  taken  by 
such  corporation,  shall  not  be  included  in  such  statement. 

Any  trust  company  which  desires  to  retire  from  business 
under  this  act,  shall  furnish  to  the  superintendent  of  banks 
satisfactory  evidence  of  its  release  and  discharge  from  all 
the  obligations  and  trusts  hereinbefore  provided  for ;  where- 
upon he  shall  revoke  his  certificate  to  such  trust  company, 
and  thereupon  the  Treasurer  of  State  shall  return  to  said 
trust  company  all  its  securities. 


CORPORATIONS  IN  CALIFORNIA.  575 

Except  as  herein  otherwise  provided,  any  trust  company 
exercising  the  powers  and  performing  the  duties  provided 
for  in  this  act,  shall  keep  inviolate  all  communications  con- 
fidentially made  to  it  touching  the  existence,  condition,  man- 
agement and  administration  of  any  trusts  confided  to  it ; 
and  no  creditor  or  stockholder  of  any  such  trust  company 
shall  be  entitled  to  disclosure  of  any  such  communication ; 
provided,  however,  that  the  president,  manager  and  secre- 
tary of  such  trust  company  shall  be  entitled  to  knowledge 
of  such  communication ;  and  provided,  further,  that  in  any 
suit  or  proceeding  touching  the  existence,  condition,  man- 
agement or  administration  of  such  trust,  the  Court  wherein 
the  same  is'pending  may  require  disclosure  of  any  such  com- 
munication. 

The  use  of  the  word  "trust"  in  combination  with  or  in 
connection  with  the  word  "company,"  "corporation,"  "incor- 
poration," "association,"  "society,"  "organization,"  or  "syn- 
dicate," is  hereby  prohibited  to  all  persons,  firms,  associ- 
ations, companies  or  corporations  other  than  corporations 
provided  for  by  this  act.  Every  person,  firm,  association, 
company  or  corporation  which  uses  the  word  "trust"  in 
combination  with  or  in  connection  with  the  word  "com- 
pany," "corporation,"  "incorporation,"  "association,"  "soci- 
ety," "organization,"  or  "syndicate,"  as  the  name  under 
which  business  is  done  or  transacted,  shall  be  subject  to  the 
provisions  of  this  act  and  to  the  supervision  of  the  super- 
intendent of  banks.  Any  person,  firm,  association,  company, 
or  corporation  making  use  of  the  word  "trust"  in  combina- 
tion or  in  connection  with  the  word  "company,"  "corpora- 
tion," "incorporation,"  "association,"  "society,"  "organiza- 
tion," or  "syndicate,"  in  the  manner  hereinabove  mentioned, 
in  the  transaction  of  business,  and  not  subject  to  the  pro- 
visions of  this  act  and  the  supervision  of  the  superintendent 
of  banks,  shall  be  guilty  of  a  misdemeanor. 

No  corporation  hereafter  formed  shall  use  the  word  "trust" 
or  "trustee"  as  a  part  of  its  corporate  name  unless  it  shall 
be   authorized   by    its   articles   of   incorporation   to   act   as 


576  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

executor,  administrator,  guardian,  assignee,  receiver,  de- 
positary or  trustee;  nor  shall  any  corporation  hereafter 
formed  accept  or  execute  any  trust  mentioned  in  this  act, 
unless  it  shall  have  complied  with  the  provisions  of  this  act. 

Every  trust  company  shall  invest  its  capital  and  trust 
funds  received  by  it  in  accordance  with  the  laws  relative  to 
the  investment  of  funds  deposited  with  savings  banks,  unless 
a  specific  agreement  to  the  contrary  is  made  between  the 
trust  company  and  the  party  creating  the  trust. 

Every  trust  company  desiring  to  do  or  doing  a  commer- 
cial banking  business  or  a  savings  bank  business,  or  both, 
in  addition  to  its  trust  business,  shall  have  paid  up  in  cash 
the  capital  as  provided  in  section  twenty-three  of  this 
act.  Such  capital  for  each  such  department  shall  be  in- 
creased from  time  to  time  in  the  same  manner  and  to  the 
same  extent  as  though  such  bank  were  conducting  separate 
banks  instead  of  separate  departments. 

Every  trust  company  doing  a  departmental  business  shall 
comply  with  the  provisions  of  this  act  governing  each  of 
such  departments  as  to  its  deposits,  reserves,  investments, 
and  loans. 

(s) — State  Banking  Department. — A  State  banking  de- 
partment has  been  created  by  the  new  law.  A  super- 
intendent of  banks  is  appointed  by  the  Governor,  at  a  salary 
of  $10,000  per  year.  He  will  have  offices  at  San  Francisco 
and  Los  Angeles.  All  banks  are  subject  to  his  inspection. 
No  bank  shall  transact  any  business  in  this  State  without 
the  written  approval  of  the  superintendent  of  banks. 

Whenever  the  superintendent  of  banks  shall  have  reason 
to  believe  that  the  capital  of  any  bank  is  reduced  by  impair- 
ment or  otherwise  below  the  amount  required  by  law  or  by 
its  articles  of  incorporation,  he  may  require  such  bank  to 
make  good  the  deficiency  within  sixty  days  after  the  date 
of  such  requisition.  He  may  examine  or  cause  to  be  exam- 
ined   any    such    bank    to    ascertain    the    amount    of    such 


CORPORATIONS  IN  CALIFORNIA.  577 

impairment  or  reduction  of  capital  and  whether  the  defi- 
ciency has  been  made  good  as  required  by  him. 

If  it  shall  appear  to  the  superintendent  of  banks  that  any 
bank  has  violated  its  articles  of  incorporation,  or  any  law 
binding-  upon  it,  he  must,  by  an  order  under  his  hand  and 
official  seal,  which  seal  must  be  adopted  by  him,  addressed 
to  such  bank,  direct  the  discontinuance  of  such  violation;  or, 
if  it  shall  appear  to  the  superintendent  of  banks  that  such 
bank  is  conducting  business  in  an  unsafe  or  injurious  man- 
ner, he  must  in  like  manner  direct  the  discontinuance  of  such 
unsafe  or  injurious  practices.  Such  order  shall  require  such 
bank  to  show  cause,  before  the  superintendent  of  banks,  at 
a  time  and  place  to  be  fixed  by  him,  why  said  order  should 
not  be  observed.  If  upon  such,  hearing  it  shall  appear  to 
the  superintendent  of  banks  that  such  bank  is  conducting 
business  in  an  unsafe  or  injurious  manner,  or  is  violating 
its  articles  of  incorporation,  or  any  law  of  this  State,  then  the 
superintendent  of  banks  shall  make  such  order  of  discontinu- 
ance final,  and  such  bank  shall  immediately  discontinue  all 
practices  named  in  such  order  by  the  superintendent  of 
banks.  Such  bank  shall  have  ten  days  after  any  such  order 
is  made  final  in  which  suit  may  be  commenced  to  restrain 
enforcement  of  such  order,  and  unless  such  action  be  so  com- 
menced and  enforcement  of  said  order  be  enjoined  within 
ten  days,  by  the  court  in  which  such  suit  is  brought,  then 
such  bank  shall  comply  with  such  order;  and,  in  the  event 
of  its  failure  so  to  do,  then  the  superintendent  of  banks  shall 
have  power  to  take  immediate  charge  and  control  of  said 
bank,  and  liquidate  its  affairs  in  the  manner  provided  in 
this  act  for  the  liquidation  of  banks. 

Whenever  the  superintendent  of  banks  shall  have  reason 
to  conclude  that  any  bank  is  in  an  unsound  or  unsafe  con- 
dition to  transact  the  business  for  which  it  is  organized,  or 
that  it  is  unsafe  or  inexpedient  for  it  to  continue  business, 
the  superintendent  of  banks  may  forthwith  take  possession 
of  the  property  and  business  of  such  bank,  and  retain  such 
possession  until  such  bank  shall  resume  business,  or  its 
affairs  be  finally  liquidated. 


578  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

On  taking  possession  of  the  property  and  business  of  any- 
such  bank,  the  superintendent  of  banks  shall  forthwith  give 
notice  in  writing  of  such  fact  to  any  and  all  corporations 
and  individuals  holding  or  in  possession  of  any  of  the  assets 
of  such  bank. 

No  bank,  corporation,  or  individual,  knowing  of  such  tak- 
ing possession  by  the  superintendent  of  banks,  or  notified 
as  aforesaid,  shall  have  a  lien  or  charge  for  any  payment, 
advance  or  clearance  thereafter  made,  or  liability  thereafter 
incurred  against  any  of  the  assets  of  the  bank  of  whose  prop- 
erty and  business  the  superintendent  of  banks  shall  have 
taken  possession  as  aforesaid.  Such  bank  may,  with  the  con- 
sent of  the  superintendent  of  banks,  resume  business  upon 
such  conditions  as  may  be  approved  by  him. 

Upon  taking  possession  of  the  property  and  business  of 
such  bank,  the  superintendent  of  banks  is  authorized  to  col- 
lect moneys  due  to  such  bank,  and  to  do  such  other  acts  as 
are  necessary  to  conserve  its  assets  and  business,  and  shall 
proceed  to  liquidate  the  affairs  thereof  as  hereinafter  pro- 
vided. 

The  superintendent  of  banks  shall  collect  all  debts  due 
and  claims  belonging  to  it,  and  upon  the  order  of  the  Supe- 
rior Court  may  sell  or  compound  all  bad  or  doubtful  debts, 
and  on  like  order  may  sell  all  real  and  personal  property 
of  such  bank  on  such  terms  as  the  Court  shall  direct;  and 
may,  if  necessary  to  pay  the  debts  of  such  bank,  enforce  in- 
dividual liability  of  the  stockholders  by  action  to  be  brought 
within  three  years  after  the  date  of  his  taking  possession 
of  the  affairs  of  such  bank. 

It  shall  be  the  duty  of  the  board  of  directors  of  every  bank 
to  examine  fully  into  the  books,  papers,  and  affairs  of  the 
bank  of  which  they  are  directors,  and  particularly  into  the 
loans  and  discounts  thereof,  with  a  special  view  to  ascer- 
taining the  value  and  security  thereof,  and  of  the  collateral 
security,  if  any  given,  in  connection  therewith,  and  into  such 
other  matters  as  the  superintendent  of  banks  may  require ; 
such  examination  to  be  made  at  least  once  a  year,  but  no 


CORPORATIONS  IN  CALIFORNIA.  579 

such  subsequent  yearly  examinations  shall  be  made  within 
three  months  of  the  next  preceding  examination.  Such 
directors  shall  have  power  to  employ  such  assistance  in  mak- 
ing such  examination  as  they  may  deem  necessary.  Within 
ten  days  after  the  completion  of  such  examination,  a  report 
in  writing  thereof,  sworn  to  by  the  directors  making  the 
same,  shall  be  made  by  the  board  of  directors  of  such  bank, 
and  placed  on  file  with  the  records  of  said  bank,  and  shall 
be  subject  to  examination  by  the  superintendent  of  banks. 

Such  report  shall  particularly  contain  a  statement  of  the 
assets  and  liabilities  of  the  bank  examined,  as  shown  by  its 
books,  together  with  any  deductions  from  the  assets,  or  addi- 
tions to  liabilities,  which  such  directors  or  committee,  after 
such  examination,  may  determine  to  make.  It  shall  also 
contain  a  statement,  in  detail,  of  loans,  if  any,  which  in  their 
opinion  are  worthless  or  doubtful,  together  with  their  rea- 
sons for  so  regarding  them ;  also  a  statement  of  loans  made 
on  collateral  security,  which  in  their  opinion  are  insuffi- 
ciently secured,  giving  in  each  case  the  amount  of  the  loan, 
the  name  and  market  value  of  the  collateral,  if  it  has  any 
market  value,  and,  if  not,  a  statement  of  that  fact,  and  its 
actual  value  as  nearly  as  possible.  Such  report  shall  also 
contain  a  statement  of  overdrafts,  of  the  names  and  amounts 
of  such  as  they  consider  worthless  or  doubtful,  and  a  full 
statement  of  such  other  matters  as  affect  the  solvency  and 
soundness  of  the  bank.  If  the  directors  of  such  bank  shall 
fail  to  make,  or  cause  to  be  made,  and  file  such  report  of 
examination  in  the  manner  and  within  the  time  specified, 
the  directors  of  such  bank  shall  be  guilty  of  a  misdemeanor. 
Act  of  the  Legislature,  approved  March  1,  1909. 

(t) — Lien  of  Bank. — A  bank  has  a  general  lien,  depend- 
ent on  possession,  upon  all  property  in  its  hands  belonging 
to  a  customer,  for  the  balance  due  the  bank  from  such 
customer  in  the  course  of  their  business  together. 
Civil  Code,  Section  3053. 


580  BUSINESS  LAWS  FOE  BUSINESS  MEN. 

(u) — National  Bank  Cannot  Deal  in  Stocks. — A  national 
bank  has  no  power  to  deal  in  stocks  of  another  corporation ; 
and  it  cannot  purchase  or  subscribe  for  the  stock  of  another 
corporation.  As  incidental  to  the  power  to  loan  money 
on  personal  security,  however,  a  national  bank  may,  in 
the  usual  course  of  doing  such  business,  accept  stock  of 
another  corporation  as  collateral;  and  by  the  enforcement 
of  its  rights  as  pledgee  it  may  become  the  owner  of  the 
collateral ;  but  it  cannot,  in  the  ordinary  course  of  business, 
buy  or  sell  stocks  of  another  corporation.  (Decided  by 
the  Supreme  Court  in  the  case  of  Chemical  National  Bank 
vs.  Havermale,  which  decision  is  printed  in  Volume  120  of 
the  California  Reports,  page  53.) 

(v) — Deposit  of  State  Money. — The  State  Treasurer  may 
deposit  the  money  of  the  State  in  banks,  State  or  national, 
in  California,  for  safe  keeping.  Such  banks  must  be 
selected  from  those  agreeing  to  pay  the  highest  rate  of 
interest,  which  cannot  be  less  than  two  per  cent  per  annum. 
Bids  will  be  called  for  by  the  State  Treasurer.  He  cannot 
deposit  in  any  bank  more  in  amount  than  25  per  cent  of  its 
paid-up  capital  stock.  Deposits  are  to  be  subject  to 
withdrawal  at  any  time.  A  bank  receiving  a  deposit  must 
leave  with  the  State  Treasurer,  United  States,  State, 
County,  Municipal,  or  School  District  bonds,  in  value  more 
than  ten  per  cent  greater  than  the  amount  of  money  depos- 
ited with  it.  Each  bank  in  which  State  money  is  deposited 
must  at  the  end  of  each  month  render  to  the  State  Treas- 
urer a  statement  in  duplicate  showing  the  daily  balances  of 
the  account  with  the  State  during  the  month  and  the 
amount  of  the  accrued  interest  thereon.  The  Treasurer, 
with  the  approval  of  the  Governor,  may  require  a  deposi- 
tory bank  to  furnish  an  indemnity  bond,  in  addition  to  the 
bonds  given  as  security. 

Act  of  the  Legislature,  approved  February  28,  1907. 

(w) — Deposit  of  County  or  City  Money. — County  or  mu- 
nicipal moneys  may  be  deposited  in  banks  by  the  public 


CORPORATIONS  IN  CALIFORNIA,  581 

officer  having  the  legal  custody  of  such  funds.  When  such 
funds  are  so  deposited,  the  bank  must  furnish  as  security 
bonds  of  the  United  States,  or  bonds  of  California,  or  bonds 
of  any  county,  municipality,  or  school  district  within  this 
State,  which  must  be  approved  by  the  officer  making  the 
deposit  and  the  District  Attorney  of  a  county  or  City  At- 
torney of  a  city.  The  market  value  of  the  bonds  furnished 
as  security  must  be  at  least  ten  per  cent  in  excess  of  the 
amount  of  the  deposit ;  provided,  the  amount  of  the  deposit 
cannot  in  any  case  exceed  the  face  value  of  the  bonds.  The 
bank  receiving  such  deposit  must  pay  a  reasonable  amount 
of  interest,  which  must  not  be  less  than  two  per  cent  per 
annum  on  the  daily  balances  deposited.  The  rate  of  interest 
must  be  fixed  annually  in  the  month  of  January,  in  the  case 
of  counties  by  the  Treasurer,  Auditor  and  Chairman  of  the 
Board  of  Supervisors,  or  in  the  case  of  cities  by  the  Treas- 
urer, Auditor  (or  Clerk  in  cities  having  no  Auditor),  and 
Chairman  of  the  Council  or  other  governing  body  of  the 
municipality.  Interest  on  deposits  must  be  paid  quarterly. 
Deposits  are  subject  to  withdrawal  at  any  time  on  demand. 
The  bank  may  also  return  deposits  at  any  time.  The  total 
amount  deposited  in  any  bank  cannot  at  any  one  time 
exceed  fifty  per  cent  of  its  capital  stock.  No  officer  can 
have  on  deposit  at  any  one  time  more  than  ten  per  cent 
of  the  public  moneys  under  his  control,  and  available  for 
deposit  in  any  bank,  while  there  are  other  qualified  banks 
requesting  deposits.  Money  must  be  deposited  in  banks 
within  the  county  or  city,  and  no  officer  can  be  required  to 
deposit  money  in  outside  banks. 

Act  of  the  Legislature,  approved  March  23,  1907. 

Section  1000.  —  Section  1000,  "Insurance  Companies,"  is 
omitted  from  the  Eighth  Edition. 

Section   1000a.— FOREIGN   CORPORATIONS.— Every 

foreign  corporation  organized  under  the  laws  of  another 
State,  Territory,  or  foreign  country,  doing  business  in  this 


582  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

State,  or  maintaining  an  office  here,  must  file  in  the  office 
of  the  Secretary  of  State  a  certified  copy  of  its  articles  of 
incorporation  or  charter ;  and  a  copy  thereof,  certified  by  the 
Secretary  of  State  of  California,  must  be  filed  in  the  office 
of  the  county  clerk  of  the  county  where  such  corporation 
has  its  principal  place  of  business,  and  must  also  be  filed 
in  the  office  of  the  county  clerk  of  any  county  where  the 
corporation  owns  property. 

Every  foreign  corporation  must,  at  the  time  of  filing  the 
certified  copy  of  its  articles  of  incorporation,  file  in  the 
office  of  the  Secretary  of  State  a  designation  of  some  person 
residing  within  the  State  upon  whom  summons  or  other 
legal  process  may  be  served. 

Act  of  the  Legislature,  in  effect  May  18,  1907. 

Section  1001. — Section  1001,  "Railroad  Corporations,"  is 
omitted  from  the  Eighth  Edition. 


PART  VII 

MINES  AND  MINING 

Section  1002.— UNITED  STATES  LAWS.— The  laws 
of  the  United  States  govern  the  subject  of  mines  and  min- 
ing, and  provide  the  manner  in  which  locations  shall  be 
made,  how  a  mining  claim  can  be  held,  and  the  particular 
lands  upon  which  a  mining  location  may  be  placed.  The 
laws  of  the  United  States  also  direct  and  control  the  rights 
and  liabilities  of  miners  in  relation  to  each  other.  The 
laws  of  the  United  States  are  paramount  on  all  these  mat- 
ters. 

Section  1003.— STATE  LAWS.— While,  as  has  been  said, 
the  laws  of  the  United  States  are  paramount,  yet  the  State 
of  California  has  power,  through  its  Legislature,  to  pass 
mining  laws,  providing  for  the  health  and  safety  of  those 
engaged  in  mining,  or  employed  in  and  about  mining  works ; 
and  to  pass  mining  laws  regulating  locations,  and  other  mat- 
ters, provided  such  laws  are  not  in  conflict  with  the  laws 
of  the  United  States. 

Section  1004.— LOCAL  RULES  AND  CUSTOMS.— The 

miners  of  any  mining  district  in  the  State  may  adopt  local 
rules  and  establish  local  customs  in  relation  to  the  acqui- 
sition, holding,  and  working  of  claims  within  such  district ; 
and  such  rules  and  customs,  when  proved,  have  the  force 
of  law,  provided  they  do  not  conflict  with  the  laws  of  the 
United  States  or  of  the  State  of  California.  These  local 
rules  and  customs  usually  deal  with  the  posting  and  record- 
ing of  location  notices,  and  sometimes  regulate  the  size 
of  a  claim,  and  the  number  of  claims  which  any  person 
may  locate,  in  the  district;  and  while  they  cannot  extend 
or  enlarge  the  rights  conferred  by  the  laws  of  the  United 

(583) 


584  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

States  or  of  the  State,  they  can  and  frequently  do  restrict 
them. 

Section  1005.— WHO  MAY  LOCATE  A  MINING 
CLAIM. — Only  those  who  are  citizens  of  the  United  States, 
or  who  have  declared  their  intention  to  become  such,  are 
allowed  by  the  law  to  make  a  location  of  mineral  lands  in 
California. 

Revised  Statutes  of  the  United  States,  Section  2319. 
Act  of  the  Legislature,  approved  March  13,  1909. 

Section  1006.— UPON  WHAT  LAND  MINING  CLAIM 
MAY  BE  LOCATED.— Only  unoccupied,  unclaimed  pub- 
lic mineral  lands  are  locatable  as  a  mining  claim.  The  land 
must  be  public  land,  that  is,  it  must  be  land  the  title  to 
which  is  in  the  United  States,  and  which  is  open  to  entry. 
Therefore,  if  it  is  land  which  has  been  expressly  reserved 
by  law,  or  if  it  is  occupied  as  an  Indian  Reservation,  it  is 
not  open  to  entry  as  mineral  land.  It  must  be  unoccupied 
and  unclaimed ;  that  is,  it  cannot  be  located  upon  if  there 
is  already  a  claimant  in  good  faith  occupying  the  land. 
But  this  does  not  mean  every  occupancy  of  any  character, 
a  mere  possession  without  right.  The  occupation  and  claim 
to  the  land,  in  order  to  be  a  bar  to  location  by  another, 
must  be  in  good  faith  and  in  compliance  with  the  law  of 
the  United  States.  And,  lastly,  it  must  be  mineral  land. 
The  test  of  the  character  of  the  land  is,  whether  it  is  more 
valuable  for  minerals  than  for  agricultural  purposes.  If 
the  land  contains  mineral  in  its  natural  state,  it  is  mineral 
land,  and  may  be  located  upon  as  a  mining  claim. 

Section  1006a.— VALUABLE  MINERAL  DEPOSIT.— 
In  order  to  constitute  a  valuable  mineral  deposit  within  the 
meaning  of  the  federal  laws,  there  must  be  minerals  in  such 
quantity  as  to  justify  the  expenditure  of  effort  to  extract 
them.  It  is  not  necessary,  however,  that  mineral  of  sufficient 
amount  and  value  to  allow  immediate  profitable  working  be 


MINES  AND  MINING.  585 

shown  to  exist  in  the  land,  a  present  or  prospective  commer- 
cial value  being  enough.  (Decided  by  the  Supreme  Court  of 
California,  in  the  case  of  Madison  vs.  Octave  Oil  Company, 
which  decision  is  printed  in  Volume  37,  California  Decisions, 
page  29.) 

Section  1007.— WHAT  IS  MINING.— Mining  is  defined 
to  be  digging  and  searching  for  precious  and  economic 
metals  and  minerals,  whether  by  shafts,  pits,  and  tunnels, 
or  by  placer  or  hydraulic  gravel  mining;  and  the  term 
includes  the  mining  of  coal,  iron,  phosphate,  and  hydro- 
carbons, and  the  boring  for  oil  and  gas,  as  well  as  prospect- 
ing for  any  of  those  metals  or  minerals. 

Section  1008.— WHAT  CONSTITUTES  A  VALID  LO- 
CATION.— To  constitute  a  valid  location  of  a  mining  claim, 
three  things  are  always  essential.  There  must  be,  first, 
discovery  of  the  mineral ;  second,  posting  and  recording  of 
notice;  third,  marking  the  location  on  the  ground  so  that 
the  boundaries  can  be  readily  traced. 

Section  1009.— THE  DISCOVERY.— If  it  is  a  lode  claim, 
there  must  be  an  actual  discovery  of  mineral.  If  a  person 
should  attempt  to  take  a  lode  claim  on  land  which  he  had 
not  prospected,  and  knew  nothing  about,  it  would  not  be 
a  valid  location.  Good  faith  is  required  by  the  law.  And 
no  location  of  a  claim  can  be  made  until  the  discovery  of 
the  vein  or  lode  within  the  limits  of  the  claim  located.  To 
discover  a  quartz  claim,  means  the  actual  finding  of  mineral- 
bearing  rock  in  place,  the  discovery  of  mineral-bearing  ore 
within  the  crevices  of  the  rock,  or  incased  within  defined 
boundaries ;  or,  the  discovery  of  such  indications  of  the 
presence  of  ore  within  rock  in  place,  as  an  experienced 
miner  would  feel  justified  in  spending  his  time  and  money 
upon  with  the  reasonable  expectation  of  finding  ore  in  pay- 
ing quantities.  When  a  locator  finds  rock  in  place  con- 
taining   mineral,    he    has    made  .a    discovery    within    the 


586  BUSINESS   LAWS  FOB  BUSINESS    MEN. 

meaning  of  the  law,  whether  the  earth  or  rock  is  rich  or  poor, 
whether  it  assays  high  or  low.  It  is  the  finding  of  the 
mineral  in  the  rock  in  place,  as  distinguished  from  float 
rock,  that  constitutes  the  discovery,  and  warrants  the  pros- 
pector in  making  a  location  of  a  mining  claim.  The  claim- 
ant should,  therefore,  prior  to  locating  his  claim,  unless  the 
vein  can  be  traced  upon  the  surface,  sink  a  shaft  or  run  a 
tunnel  or  drift  to  a  sufficient  depth  to  discover  and  develop 
a  mineral-bearing  vein,  lode,  or  creviqe.  He  should  also 
determine,  if  possible,  the  general  course  of  the  vein  in 
cither  direction  from  the  point  of  discovery,  by  which  direc- 
tion he  will  be  governed  in  making  the  boundaries  of  his 
claim  on  the  surface.  What  has  been  said  on  the  subject 
of  discovery  applies  only  to  lode  or  quartz  claims.  The 
law  does  not  specify  any  actual  discovery  of  mineral  as  an 
essential  to  the  location  of  a  placer  claim,  and  it  has  been 
held  in  California  that  a  location  of  a  placer  claim  may  be 
made  without  discovery  of  minerals  being  first  made  on  the 
ground.  But  no  patent  could  be  obtained  for  a  placer  claim 
without  proof  of  the  mineral  character  of  the  claim. 

Section  1010.— MARKING  THE  BOUNDARIES.— The 

boundaries  must  be  marked  in  such  a  way  that  the  claim 
can  be  identified  on  the  ground.  The  locator  should  drive 
a  post  or  erect  a  monument  of  stones  at  each  corner  of  his 
surface  ground ;  and  at  the  point  of  discovery,  or  discovery 
shaft,  he  should  fix  a  post,  stake,  or  board,  on  which  should 
be  designated  the  name  of  the  lode,  the  name  or  names  of 
the  locators,  and  the  number  of  feet  claimed  and  in  which 
direction  from  the  point  of  discovery. 

Section  1011.— LOCATION  NOTICE.— A  notice  of  loca- 
tion must  be  posted  on  the  claim,  at  the  point  of  discovery, 
or  discovery  shaft. 

Section  1012.— FORM  OF  NOTICE  OF  LOCATION 
OF  LODE  CLAIM.— The  following  is  a  form  of  location  of 
lode  claim  : — • 


MINES  AND  MINING.  587 

Location  Notice. 

NOTICE  IS  HEREBY  GIVEN  TO  ALL  WHOM  IT 

MAY  CONCERN :  That , 

a  citizen  of  the  United  States,  having  discovered  a  lode  or 

vein  of  quartz,  or  rock  in  place,  bearing 

(here  insert  kind  of  mineral  discovered),  within  the  limits 
of  the  claim  hereby  located,  has  this  day,  under  and  in 
accordance  with  the  Revised  Statutes  of  the  United  States, 

Chapter  VII,  Title  32,  located   (here 

state  number  of  feet)  linear  feet  of  this  vein  or  lode,  with 

surface  ground   (here  state  number  of 

feet)  feet  in  width,  situated  in   

mining  district,  County  of ,  State  of  Cal- 
ifornia, and  known  as (here 

state  name  of  mine),  extending feet  to 

a    (here  describe  natural 

object  or  monument),  and  feet 

to   (here  describe  natural  object  or 

monument)  from  this  notice  at  the  discovery  or  prospect 
shaft,  the  exterior  boundaries  of  this  claim  being  distinctly 
marked  by  reference  to  some  natural  object  or  permanent 
monument,    and    more    particularly    described    as    follows, 

to-wit : 

(Here  insert  description.) 


and  I  intend  to  hold  and  work  said  claim  as  provided  by 
the  local  customs  and  local  rules  of  miners,  and  the  mining 
Statutes  of  the  United  States. 


Dated  on  the  ground,  the day  of ,  19. .. 

Discovered ,  19. .. 

,  locator. 

Recorded ,  19. .. 

Section  1013.— FORM  OF  NOTICE  OF  LOCATION 
OF  A  PLACER  CLAIM.— The  following  is  a  form  o! 
notice  of  location  of  a  placer  claim : — 

Location  Notice. 

NOTICE  IS  HEREBY  GIVEN  TO  ALL  WHOM  IT 

MAY  CONCERN  :  That ,  a  citizen 

of  the  United  States,  has  this  day  located,  in  accordance 


588  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

with  the  Revised  Statutes  of  the  United  States,  Chap- 
ter VI,  Title  32,  the  following  described  placer  mining 
ground,   to-wit :    

(Description :  If  on  surveyed  land,  describe  the  legal  sub- 
division. If  on  unsurveyed  land,  describe  as  accurately  as 
possible  by  courses  and  distances.) 


Situated  in mining  district,  County 

of ,  State  of  California.    This  claim  shall 

be  known  as (here  insert 

name  of  claim)  mining  claim,  and  I  intend  to  work  the 
same  in  accordance  with  the  local  customs  and  rules  of 
miners,  and  the  mining  Statutes  of  the  United  States. 


Dated  on  the  ground  the day  of ,  19. .. 

Located  ,  19 . . . 

Recorded ,  19 . . . 

Section  1014.— RECORDING  LOCATION  NOTICE.— 

The  Congress  of  the  United  States  has  provided  by  law 
that  "the  location  notice  must  be  filed  for  record  in  all 
respects  as  required  by  the  State  laws  and  local  rules  and 
regulations,  if  there  be  any."  The  State  of  California,  by 
an  Act  of  the  Legislature,  has  provided  that  notices  of 
location  of  mining  claims  must  be  recorded  in  the  Recorder's 
office  of  the  county  where  the  mining  claim  is  situated, 
within  thirty  days  after  the  posting  of  notice  of  location. 
This  applies  to  lode,  placer,  and  tunnel  claims. 

Civil  Code  of  California,  Section  1159. 

Act  of  the  Legislature,  approved  March  13,  1909. 

Section  1015.— SIZE  OF  LODE  CLAIM.— Any  person 
who  is  a  citizen  of  the  United  States,  or  who  has  declared 
his  intention  to  become  a  citizen,  may  locate,  record,  and 
hold  a  mining  claim  of  fifteen  hundred  linear  feet  along  the 
■course  of  any  mineral  vein  or  lode  subject  to  location;  or 


MINES  AND  MINING.  589 

an  association  of  persons,  who  are  citizens  of  the  United 
States,  may  make  a  joint  location  of  fifteen  hundred  feet 
along  the  course  of  the  lode  or  vein.  The  claim,  according 
to  the  law,  is  not  to  exceed  fifteen  hundred  feet  in  length. 
As  to  width,  the  law  provides  that  the  lateral  extent  of 
locations  on  veins  or  lodes  shall  in  no  case  exceed  three 
hundred  feet  on  each  side  of  the  middle  of  the  vein  at  the 
surface.  Thus  the  extreme  size  of  a  lode  claim  is  fifteen 
hundred  feet  in  length  by  six  hundred  feet  in  width.  But 
the  law  also  gives  mining  districts  the  right  to  reduce  the 
width  of  a  mining  claim  to  less  than  six  hundred  feet, 
but  not  less  than  fifty  feet.  The  laws  referred  to  are  the 
laws  of  the  United  States.  The  State  of  California  has 
no  law  of  its  own  upon  the  subject.  When  the  locator 
does  not  determine  by  survey  or  exploration  where  the 
middle  of  his  vein  at  the  surface  is,  his  discovery  shaft  is 
taken  to  mark  the  middle  of  the  vein. 

Where  the  vein  runs  in  one  direction,  the  location  must 
follow  the  direction  of  the  vein,  and  the  locator  cannot  stake 
his  claim  crosswise  of  the  vein  and  expect  to  hold  the  full 
amount  allowed  by  law  as  the  size  of  a  lode  claim.  Where 
the  vein  within  a  mining  claim  ran  in  a  northerly  and  south- 
erly direction,  and  the  location  was  crosswise  of  the  vein, 
it  was  held  by  the  Court  of  Appeals  that  the  side-lines  were 
really  end-lines,  considering  the  direction  of  the  lode  on  the 
surface;  and  that  the  rights  of  the  locators  must  be  con- 
fined to  the  area  within  the  side-lines  three  hundred  feet 
on  each  side  of  the  vein  or  lode.  (Decided  by  the  California 
Court  of  Appeals,  in  the  case  of  Southern  California  Ry. 
Co.  vs.  O'Donnell,  which  decision  is  printed  in  Volume  85 
of  the  Pacific  Reporter  (advance  sheets),  page  932.) 

Revised  Statutes  of  the  United  States,  Section  2320. 

Section  1016.— SIZE  OF  PLACER  CLAIM.— An  indi- 
vidual may  locate  twenty  acres  as  a  placer  claim.  Two 
persons  may  associate  themselves  together  and  locate  forty 
acres  as  a  placer  claim ;  and  so  on  up  to  eight  persons,  who 


590  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

may  locate  one  hundred  and  sixty  acres  as  a  placer  claim. 
But  no  individual  can  locate  more  than  twenty  acres,  and 
no  association  of  persons  can  locate  more  than  one  hundred 
and  sixty  acres. 

Revised  Statutes  of  the  United  States,  Sections 
2330,  2331. 

Section  1017.— DISCOVERY  ON  PLACER  GROUND. 

— It  has  already  been  stated  that  there  must  be  a  valid  dis- 
covery of  minerals,  before  the  location  can  have  any  legal 
effect,  and  that  the  discovery  of  a  quartz  claim  must  be  ot 
a  lode  or  vein  in  rock  in  place.  But  when  we  come  to  con- 
sider a  placer  claim,  the  rule  stated  does  not  apply.  The 
term  "placer"  is  of  wide  significance.  It  includes  any  form 
of  mineral  deposit,  except  quartz  or  other  rock  in  place. 
All  forms  of  mineral  and  metal  bearing  earth,  other  than 
veins  or  lodes  in  rock  in  place,  are  held  to  be  "placer." 
They  cannot  be  fixed  in  place,  confined  within  walls  of 
rock,  for  they  may  be  found  in  shifting  sand,  or  loose 
gravel,  or  in  the  channels  of  rivers ;  and  the  term  "placer" 
includes  natural  gas,  petroleum,  and  hydrocarbons.  But 
while  a  valid  location  may  be  made  under  the  laws  relating 
to  placer  locations  without  a  previous  discovery  of  mineral, 
yet  such  discovery  must  be  made  before  a  patent  from  the 
United  States  Government  can  be  issued  under  the  Acts  of 
Congress  relating  to  the  disposition  of  mineral  lands. 
(Decided  by  the  Supreme  Court  of  California  in  the  case 
of  Gregory  vs.  Pershbaker,  which  decision  is  printed  in 
Volume  73  of  the  California  Reports,  page  109.) 

(a) — Discovery  of  Oil. — A  discovery  of  oil  within  the 
limits  of  the  claim  is  essential  to  the  validity  of  an  oil  loca- 
tion. To  constitute  a  discovery  of  oil,  there  must  be  some- 
thing more  than  ordinary  surface  indications,  such  as  the 
seepage  of  oil,  or  geological  formations.  There  must  be  an 
actual  discovery  of  oil  in  paying  quantities.  It  is  not  neces- 
sary that  this  discovery  be  made  before  or  at  the  time  of  the 


MINES  AND  MINING.  591 

location,  for  a  subsequent  discovery  will  operate  to  perfect 
the  location.  But  if  the  location  is  made  before  discovery  of 
oil  in  paying  quantities,  and  the  locator  leaves  the  claim, 
without  prosecuting  work  on  it,  another  person  may  lawfully 
enter  and  locate  on  the  land.  (Decided  by  the  Supreme 
Court  of  California,  in  the  case  of  New  England  and  Coa- 
linga  Oil  Co.  vs.  Congdon,  which  decision  is  printed  in  Vol- 
ume 34  of  California  Decisions,  page  395.) 

Section  1018.— TIME  WITHIN  WHICH  LOCATION 
MUST  BE  MADE  AFTER  DISCOVERY.— The  law  of 

the  United  States  does  not  specify  any  certain  time  within 
which  location  must  be  made,  and  notices  posted  or  re- 
corded, after  discovery.  The  location  must  be  made,  and 
the  boundaries  marked  on  the  ground,  within  a  reasonable 
time  after  discovery.  If  local  rules  and  customs  prescribe 
a  certain  time,  that  time  must  be  followed.  Whenever  any 
patent  to  mineral  lands  shall  contain  a  statement  of  the 
date  of  location  of  a  claim  or  claims,  upon  which  such  patent 
is  based,  this  statement  will  be  received  in  the  courts  of 
California  as  prima  facie  evidence  of  the  true  date  of  the 
location.     (Act  of  the  Legislature,  approved  March  7,  1905.) 

Section  1019.— OIL  AND  ASPHALTUM.— Petroleum, 
natural  gas,  and  asphaltum  are  held  to  be  mineral,  and  may 
be  located  as  placer  claims.  Much  controversy  over  the 
question,  whether  public  land  in  which  petroleum  was  found 
could  be  located  under  the  mining  laws,  caused  the  Con- 
gress of  the  United  States  to  pass  an  act  on  the  subject 
in  1897,  which  removes  all  doubt.  The  law  reads :  "Any 
person  authorized  to  enter  lands  under  the  mining  laws  of 
the  United  States  may  enter  or  obtain  patent  to  lands  con- 
taining petroleum  or  other  mineral  oil,  and  chiefly  valuable 
therefor,  under  the  provisions  of  the  laws  relating  to  placer 
and  mineral  claims."  Therefore,  twenty  acres  of  oil  lands 
may  be  located  as  a  placer  claim  by  an  individual,  and  as 
much  as  one  hundred  and  sixty  acres  by  an  association  of 


592  BUSINESS   LAWS  FOR  BUSINESS   MEN, 

persons.      It  is  not  necessary  that  discovery  of  oil  should ' 
be  first  made. 

Act  of  Congress,  approved  February  11,  1897. 

(a) — Transfer  of  Rights  by  Members  of  Association. — 

The  rights  acquired  by  an  association  of  locators  of  mineral 
lands  may  be  transferred  among  themselves  before  dis- 
covery, without  affecting  the  whole  claim,  and  the  subse- 
quent discovery  by  any  grantee  will  perfect  the  entire 
original  location. 

Where  an  association  of  eight  persons  locate  one  hundred 
and  sixty  acres  of  mineral  land  for  the  purpose  of  discover- 
ing oil,  and  before  discovery  transfer  a  specific  portion  to  a 
stranger,  such  portion  becomes  a  separate  and  independent 
claim,  unless  there  be  an  agreement  to  the  contrary ;  and  a 
subsequent  discovery  of  oil  on  such  severed  portion  will  not 
perfect  the  entire  original  location.  (Decided  by  the  Su- 
preme Court  of  California,  in  the  case  of  Merced  Oil  Mining 
Company  vs.  R.  L.  Patterson,  which  decision  is  printed  in 
California  Decisions,  Volume  35,  page  550.) 

Section  1020.— ANNUAL  LABOR  AND  ASSESS- 
MENT WORK. — In  order  to  hold  a  mining  claim,  the 
locator  must  do  a  certain  amount  of  work  each  year,  and 
this  is  measured  not  by  time,  but  by  the  value  of  the  work 
performed.  On  each  claim  located,  whether  quartz  or 
placer,  not  less  than  one  hundred  dollars'  worth  of  labor 
must  be  done,  or  an  equal  value  of  improvements  made, 
during  each  year  until  a  patent  has  been  issued  for  the 
claim.  A  failure  to  comply  with  this  law  forfeits  the  claim, 
and  leaves  it  open  for  relocation  by  another  person.  But 
if  the  original  locator,  his  heirs,  assigns,  or  legal  representa- 
tives, after  the  time  has  expired  within  which  he  should 
have  done  the  assessment  work,  and  before  another  person 
has  located  on  the  ground,  then  proceeds  to  do  the  work, 
he  saves  the  forfeiture  and  recovers  the  claim  again  to 
himself. 

Revised  Statutes  of  the  United  States,  Section  2324. 


MINKS  AND  MINING.  593 

Section     1021.— WHEN  FIRST     WORK     MUST     BE 

DONE. — The  law  does  not  mean  that  the  work  should  be 
done  within  a  year  from  the  date  of  location.  The  period 
for  performing  the  assessment  work  commences  on  the  first 
da-y  of  January  succeeding  the  date  of  location  of  the  claim. 
At  least  one  hundred  dollars'  worth  of  work  must  be  done 
each  year. 

Supplement  to  the  Revised  Statutes  of  the  United 
States,  Volume  1,  page  276. 

Section  1022.— WHERE  WORK  SHOULD  BE  DONE. 

— Annual  labor  or  improvements  to  the  amount  of  one  hun- 
dred dollars  may  be  anywhere  within  the  boundaries  of  the 
claim.  But  it  is  not  absolutely  necessary  that  this  work 
be  done  within  such  boundaries.  It  may  be  done  on  ad- 
joining or  neighboring  ground,  if  the  work  so  done  tends 
to  develop  the  claim,  and  this  will  be  a  sufficient  compliance 
with  the  law. 

And  in  a  case  where  a  miner  holds  several  claims,  the 
annual  labor  or  improvements  required  for  the  whole  of 
them  may  be  done  or  made  upon  any  one  or  more  of  them, 
provided  that  such  labor  or  improvements  tend  to  develop 
them  all.  And  even  if  the  claim  upon  which  the  work  is 
done  is  patented,  and  the  remainder  are  unpatented,  it  will 
make  no  difference,  so  long  as  the  work  done  tends  in  fact 
to  develop,  and  is  done  for  the  purpose  of  developing,  the 
unpatented  claims,  and  as  assessment  work  upon  them. 

Work  done  or  improvements  made,  for  the  purpose  of 
developing  the  ground  embraced  in  the  location,  outside 
of  the  limits  of  the  claim,  is  as  available  for  holding  it  as 
if  done  within  its  boundaries.  Labor  and  improvements, 
within  the  meaning  of  the  law,  are  deemed  to  have  been 
had  on  a  mining  claim,  whether  it  consists  of  one  location  or 
several,  when  the  labor  is  performed  or  the  improvements 
are  made  for  its  development,  to  facilitate  the  extrac- 
tion of  the  metals  it  may  contain ;  and  such  labor  and 
improvements  may  lawfully  be  on  ground  which  originally 


594  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

constituted  only  one  of  the  locations,  as  in  sinking  a  shaft; 
or  the  labor  and  improvements  may  be  at  a  distance  from 
the  claim  itself,  as  where  the  labor  is  performed  for  the 
turning  of  a  stream,  or  to  bring  water  on  the  claim,  or  where 
the  improvement  consists  in  the  construction  of  a  flume  to 
carry  oflf  the  debris  or  waste  material.  (Decided  by  the 
Supreme  Court  of  California  in  the  case  of  De  Noon  vs. 
Morrison,  which  decision  is  printed  in  Volume  83  of  the 
California  Reports,  page   163.) 

Section  1023.— PROOF  OF  ASSESSMENT  WORK.— 

The  law  of  California  provides  that  proof  of  assessment 
work  must  be  made  by  affidavit,  within  thirty  days  after  the 
time  limited  for  performing  the  labor  or  making  the  im- 
provements, particularly  describing  the  labor  performed  and 
improvements  made,  and  the  value  thereof.  The  law  also 
provides  that  this  affidavit  must  be  recorded  in  the  office 
of  the  County  Recorder  of  the  county  in  which  the  mine 
or  claim  is  situated,  within  thirty  days. 

Statutes  of  1891,  page  219. 

Act  of  the  Legislature,  approved  March  13,  1909. 

Section  1024.— FORM  OF  PROOF  OF  ASSESSMENT 
WORK.' — The  following  is  a  form  of  proof  of  assessment 
work : — 

Proof  of  Labor. 

STATE  OF  CALIFORNIA, 
County  of 


ss. 


Before  me  the  subscriber  personally  appeared 

,  who  being  duly  sworn  says,  that  at  least 

$100  worth  of  labor  or  improvements  were  performed  or 
made  upon (here  state  name  of  min- 
ing claim),  situated  in mining 

district.  County  of ,  State  of  California, 

during  the  year  ending  December  31,  19. ..  Such  expendi- 
ture was  made  by  or  at  the  expense  of 


MINES  AND  MINING.  595 

,  owner  of  said  claim,  for  the  purpose 

of  holding  said  claim. 

That  the  labor  performed  and  improvements  made  were 
as  follows,  to-wit :  

(Here  give  a  particular  description  of  the  labor  performed 

and  improvements  made.) 

That  the  value  of  said  labor  was  $ 

That  the  value  of  said  improvements  was  $ 


Subscribed  and  sworn  to  before  me  this  day 

of   ,   19... 


Notary  Public  in  and  for  the  County  of 

State  of  California. 
(Note. — The  above  affidavit  may  be  sworn  to  before  a 
Notary,  a  Justice  of  the  Peace,  or  any  officer  authorized  by 
law  to  administer  oaths.) 

Section  1025.— RELOCATION  OF  CLAIM  AFTER 
FORFEITURE. — If  for  any  reason  a  mining  claim  has 
been  forfeited,  by  failure  to  do  assessment  work,  or  by 
reason  of  abandonment,  another  person  may  relocate  it. 
He  must  make  his  location  as  the  original  locator  did,  and 
in  his  notice  of  location  he  should  state  that  the  claim  was 
originally  located  by  another  person  (naming  him),  but  that 
the  claim  had  been  abandoned  or  forfeited. 

Section  1026.— MINERAL  ENTRIES  WITHIN  FOR- 
EST RESERVES.— The  law  provides  that  "any  mineral 
lands  in  any  forest  reservation  which  have  been  or  which 
may  be  shown  to  be  such,  and  subject  to  entry  under  the 
existing  mining  laws  of  the  United  States  and  the  rules 
and  regulations  applying  thereto,  shall  continue  to  be  sub- 
ject to  such  location  and  entry,"  notwithstanding  the  reser- 
vation. This  makes  mineral  lands  in  the  forest  reserves 
subject  to  location  and  entry  under  the  general  mining  laws 
in  the  usual  manner. 


596  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  1027.— LOCATION  BY  AGENTS.— A  location 
of  a  mining  claim  may  be  made  in  the  name  of  another  than 
the  actual  locator,  and  when  so  made,  the  person  in  whose 
name  it  is  made  becomes  vested  with  the  legal  title  to  the 
claim.  A  prospector  may  locate  for  himself,  and  then  make 
other  locations  in  the  names  of  others,  and  he  will  be  con- 
sidered the  agent  of  the  persons  in  whose  names  the  loca- 
tions are  made.  (Decided  by  the  Supreme  Court  of  Cali- 
fornia in  the  case  of  Moore  vs.  Hamerslag,  which  decision 
is  printed  in  Volume  109  of  the  California  Reports,  page 
122.^ 

Section  1028.— LOCATION  BY  MINORS.— A  valid  lo- 
cation of  a  mining  claim  may  be  made  by  a  minor.  The 
law  allows  any  one  who  is  a  citizen,  or  who  has  declared 
his  intention  to  become  such,  to  locate  a  mining  claim.  The 
law  does  not  require  that  the  locator  shall  be  of  any  par- 
ticular age.  In  a  California  case  the  Supreme  Court  held 
that  a  minor  can  make  a  location  of  a  mining  claim  in  this 
State,  saying:  "Nor  is  there  any  reason  in  the  nature  of 
things  why  a  minor  may  not  make  a  valid  location.  After 
the  preliminary  steps  are  taken,  all  that  is  required  is  that 
a  certain  amount  of  work  shall  be  done.  If  the  minor  can- 
not do  it,  he  can  get  any  one  to  do  it  for  him,  and  the  con- 
dition imposed  by  the  statute  is  fulfilled.  If  he  cannot, 
the  claim  lapses,  and  is  open  to  relocation  by  others.  It 
may  be  added  that  so  far  as  we  know  it  is  the  practice 
of  many  mining  communities  for  minors  to  locate  claims." 
(Decided  by  the  Supreme  Court  of  California  in  the  case  of 
Thompson  vs.  Spray,  which  decision  is  printed  in  Volume 
72  of  the  California  Reports,  page  528.) 

Section  1029.— TUNNEL  CLAIMS.— The  laws  of  the 
United  States  provide  for  certain  tunnel  claims,  where  a 
tunnel  is  run  for  the  discovery  of  "blind  lodes  or  veins ;" 
and  so  long  as  the  tunnel  claimant  operates  his  tunnel,  the 
law  reserves  in  his  favor  3,000  feet  from  the  face  of  the 


MINES  AND  MINING.  597 

tunnel,  with  1,500  feet  in  the  opposite  direction  on  the  strike 
of  the  vein,  from,  either  wall  of  his  tunnel.  The  law  states 
that  the  owner  of  the  tunnel  shall  have  the  right  of  pos- 
session of  all  veins  or  lodes  within  3,000  feet  from  the  face 
of  such  tunnel,  on  the  line  thereof,  not  previously  known 
to  exist,  discovered  in  the  tunnel,  to  the  same  extent  as  if 
discovered  upon  the  surface.  Locations  on  the  line  of  such 
tunnel,  of  veins  or  lodes  not  appearing  on  the  surface,  made 
by  other  parties  after  the  commencement  of  the  tunnel,  and 
while  it  is  being  prosecuted  with  reasonable  diligence,  are 
invalid.  Failure  to  prosecute  the  work  on  the  tunnel  for 
six  months  is  considered  as  an  abandonment  of  the  right 
to  all  veins  on  the  line  not  discovered  when  the  work  ceased. 
Revised  Statutes  of  the  United  States,  Section  2323. 

Section   1030.— LOCATION   OF  TUNNEL   CLAIM.— 

The  term  "face,"  as  used  in  the  tunnel  claim  law,  means  the 
first  working  face  formed  in  the  tunnel,  and  signifies  the 
point  at  which  the  tunnel  actually  enters  cover,  it  being 
from  this  point  that  the  3,000  feet  are  to  be  counted 
upon  which  prospecting  is  prohibited.  To  avail  them- 
selves of  the  benefits  of  this  provision  of  law,  the  pro- 
prietors of  a  mining  tunnel  will  be  required,  at  the  time 
they  enter  cover,  to  give  proper  notice  of  their  tunnel  loca- 
tion by  erecting  a  substantial  post,  board,  or  monument 
at  the  face  or  point  of  commencement  thereof,  upon  which 
should  be  posted  a  good  and  sufficient  notice,  giving  the 
names  of  the  parties  or  company  claiming  the  tunnel  right ; 
the  actual  or  proposed  course  or  direction  of  the  tunnel; 
the  height  and  width  thereof,  and  the  course  and  distance 
from  such  face  or  point  of  commencement  to  some  perma- 
nent, well-known  objects  in  the  vicinity;  and  at  the  time 
of  posting  such  notice  they  should,  in  order  that  miners 
or  prospectors  may  be  enabled  to  determine  whether  or 
not  they  are  within  the  lines  of  the  tunnel,  establish  the 
boundary  lines  thereof,  by  stakes  or  monuments  placed 
along  such  lines  at  intervals  of  not  more  than  600  feet,  to 


598  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  terminus  of  the  3,000  feet  from  the  face  or  point  of  com- 
mencement of  the  tunnel,  and  the  lines  so  marked  will  define 
and  govern  as  to  the  specific  boundaries  within  which  pros- 
pecting for  lodes  not  previously  known  to  exist  is  prohib- 
ited while  work  on  the  tunnel  is  being  prosecuted  with  rea- 
sonable diligence.  A  copy  of  the  posted  notice  must  be  filed 
with  the  County  Recorder,  and  should  also  be  filed  with  the 
Recorder  of  the  mining  district,  if  any ;  with  an  affidavit  at- 
tached of  the  owners,  claimants,  or  projectors  of  the  tunnel, 
stating  the  amount  expended  by  themselves  and  their  prede- 
cessors in  interest  in  prosecuting  the  work ;  the  extent  of  the 
work  performed ;  and  that  it  is  their  intention  in  good  faith 
to  prosecute  the  work  on  the  tunnel  with  reasonable  dili- 
gence for  the  development  of  a  vein  or  lode,  or  for  the  dis- 
covery of  mines. 

Section  1031.— LODE  AND  PLACER  CLAIMS  IN 
THE  SAME  GROUND.— It  sometimes  occurs  that  a  lode 
will  be  discovered  within  the  boundaries  of  a  placer  claim. 
In  that  event,  the  owners  of  the  placer  claim  have  an  im- 
mediate right  to  apply  to  the  Government  for  a  patent,  and 
the  application  must  state  the  existence  of  the  lode.  The 
Government  will  then  issue  a  patent  for  the  lode,  fifty  feet 
in  width,  upon  the  payment  of  $5.00  per  acre;  and  also  a 
patent  for  the  placer  portion  of  the  land  upon  the  payment 
of  $2,50  per  acre.  If  the  owner  of  a  placer  claim  makes 
application  for  a  patent,  without  mentioning  a  known  vein 
or  lode  within  its  boundaries,  any  other  person  may  locate 
the  lode,  in  the  same  manner  as  any  other  quartz  claim  is 
located,  but  acquiring  only  1,500  by  50  feet. 

Revised  Statutes  of  the  United  States,  Section  2333. 

Section  1032.— MILL  SITES.— The  owner  of  a  lode 
claim  may  also  locate,  in  the  same  manner  as  mining  claims 
are  located  (that  is,  by  posting  and  recording  notice,  and 
erecting    monuments     for     identification),     five    acres    of 


MINES  AND  MINING.  599 

non-mineral  land  for  a  mill  site.  The  mill  site  need  not  be 
adjacent  to  the  mining  claim.  It  must  be  used  for  a  mill 
site  in  connection  with  the  mining  claim,  where  a  mill  site 
is  located  by  the  owner  of  a  lode  claim.  But  the  law 
further  provides  that  the  owner  of  a  quartz-mill  or  reduc- 
tion-works, not  owning  a  mine  in  connection  therewith, 
may  also  locate  a  mill  site,  not  exceeding  five  acres  of  non- 
mineral  land,  and  obtain  a  patent  for  it. 

Revised  Statutes  of  the  United  States,  Section  2337. 

Section  1033.— TIMBER  FOR  MINING  PURPOSES.— 

The  law  allows  sufficient  timber  to  be  cut  on  mineral  land 
for  the  proper  working  of  the  mine  proper.  Timber  for 
the  mine,  shafts,  or  tunnels,  for  houses  for  employees,  and 
other  purposes  in  the  working  of  the  mine,  may  lawfully 
be  cut  and  used. 

Section  1034.— WATER  AND  WATER  RIGHTS  FOR 
MINING  PURPOSES.— For  the  law  as  to  water  and 
water  rights  for  mining  purposes,  see  Part  VIII,  title, 
"Water  and  Water  Rights." 

Section    1035.— MINING    PARTNERSHIPS.— For    the 

law  as  to  mining  partnerships,  see  under  the  heading  "Part- 
nership." 

Section  1036.— LIENS  ON  MINING  CLAIMS.— For  the 

law  as  to  liens  on  mining  claims,  see  under  the  heading, 
"Mechanics'  Liens." 

Section  1037.— ENTRY  OF  COAL  LANDS.— Coal'lands 
may  be  entered  without  making  the  location  required  for 
other  claims.  There  is  a  difference,  also,  in  the  persons 
qualified  to  take  coal  lands,  and  in  the  number  of  acres 
which  can  be  taken.  The  person  who  takes  coal  land  must 
not  only  be  a  citizen  of  the  United  States,  or  have  declared 
his  intention  to  become  such,  but  he  must  also  be  over 
the  age  of  21  years.  Within  sixty  days  after  the  date  of 
actual  possession  and  the  commencement  of  improvements 


600  BUSINESS   LAWS  FOR  BUSINESS   MEN. 

on  the  land,  an  individual  may  enter  at  the  Land  Office  in 
the  district  any  quantity  of  vacant  coal  lands  not  exceeding 
160  acres.  An  association  of  persons  may  enter  not  ex- 
ceeding 320  acres.  The  price  to  be  paid  for  coal  lands  is 
$20  per  acre,  for  lands  within  fifteen  miles  of  a  completed 
railroad,  or  $10  per  acre  for  lands  more  than  fifteen  miles 
from  a  completed  railroad. 

Revised  Statutes  of  the  United  States,  Section  2348. 

Section  1038.— HOW  TO  OBTAIN  A  PATENT  TO  A 
MINING  CLAIM.— The  Revised  Statutes  of  the  United 
States,  Section  2335,  provide  the  manner  in  which  a  patent 
to  a  mining  claim  may  be  obtained.  It  will  be  seen  from 
what  follows  that  the  claim-owner  who  desires  a  patent 
must  go  to  a  lawyer,  to  have  his  application  made  out,  and 
the  various  plats  and  notices  properly  filed  and  published; 
and  as  he  cannot  safely  use  any  of  the  necessary  forms 
himself,  without  the  aid  of  a  competent  lawyer,  the  forms 
are  not  given  in  this  book.  The  claimant  who  wants  a 
patent  is  required,  in  the  first  place,  to  have  a  correct  survey 
of  his  claim  made,  under  authority  of  the  United  States 
Surveyor-General  for  California ;  such  survey  to  show  with 
accuracy  the  exterior  surface  boundaries  of  the  claim,  which 
boundaries  are  required  to  be  distinctly  marked  by  monu- 
ments on  the  ground.  Section  2335  of  the  United  States 
Revised  Statutes  is  as  follows :  "A  patent  for  any  land 
claimed  and  located  for  valuable  deposits  may  be  obtained 
in  the  following  manner :  Any  person,  association,  or  cor- 
poration authorized  to  locate  a  claim  under  this  chapter, 
having  claimed  and  located  a  piece  of  land  for  such  pur- 
poses, who  has,  or  have,  complied  with  the  terms  of  this 
chapter,  may  file  in  the  proper  land  office  an  application 
for  a  patent,  under  oath,  showing  such  compliance,  together 
with  a  plat  and  field  notes  of  the  claim  or  claims  in  com- 
mon, made  by  or  under  the  direction  of  the  United  States 
Surveyor-General,  showing  accurately  the  boundaries  of  the 
claim    or    claims,    which    shall    be    distinctly    marked    by 


MINKS  AND  MINING.  601 

monuments  on  the  ground,  and  shall  post  a  copy  of  such 
plat,  together  with  a  notice  of  such  application  for  a  patent, 
in  a  conspicuous  place  on  the  land  embraced  in  such  plat 
previous  to  the  filing  of  the  application  for  a  patent,  and  shall 
file  an  affidavit  of  at  least  two  persons  that  such  notice 
has  been  duly  posted,  and  shall  file  a  copy  of  the  notice  in 
such  land  office,  and  shall  thereupon  be  entitled  to  a  patent 
for  the  land,  in  the  manner  following:  The  register  of  the 
land  office,  upon  the  filing  of  such  application,  plat,  field 
notes,  notices,  and  affidavits,  shall  publish  a  notice  that 
such  application  has  been  made,  for  the  period  of  sixty  days, 
in  a  newspaper  to  be  by  him  designated  as  published  near- 
est to  such  claim ;  and  he  shall  also  post  such  notice  in  his 
office  for  the  same  period.  The  claimant  at  the  time  of 
filing  this  application,  or  at  any  time  thereafter,  within 
sixty  days  of  publication,  shall  file  with  the  register  a  cer- 
tificate of  the  United  States  Surveyor-General  that  five 
hundred  dollars'  worth  of  labor  has  been  expended  or  im- 
provements made  upon  the  claim  by  himself  or  grantors; 
that  the  plat  is  correct,  with  such  further  description  by 
such  reference  to  natural  objects  or  permanent  monuments 
as  shall  identify  the  claim,  and  furnish  an  accurate  descrip- 
tion, to  be  incorporated  in  the  patent.  At  the  expiration 
of  the  sixty  days  of  publication,  the  claimant  shall  file  his 
affidavit,  showing  that  the  plat  and  notice  have  been  posted 
in  a  conspicuous  place  on  the  claim  during  such  period  of 
publication.  If  no  adverse  claim  shall  have  been  filed  with 
the  register  and  the  receiver  of  the  proper  land  office  at  the 
expiration  of  the  sixty  days  of  publication,  it  shall  be  as- 
sumed that  the  applicant  is  entitled  to  a  patent,  upon  the 
payment  to  the  proper  officer  of  five  dollars  per  acre,  and 
that  no  adverse  claim  exists." 

Revised  Statutes  of  the  United  States,  Section  2335. 

Section  1039.— MINING  LEASE.— A  mining  lease  is 
necessarily  diflferent  in  many  respects  from  the  ordinary 
lease,   for   it   must   provide   for  amount   and   character   of 


602  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

work  to  be  done,  timbering,  the  use  of  machinery,  inspec- 
tion of  work  and  mine,  the  payment  of  royalty,  and  pos- 
sibly other  matters,  which  never  enter  into  leases  of  other 
property. 

A  mining  lease  must  be  in  writing,  if  the  term  is  for 
more  than  one  year. 

Section  1040.— FORM  OF  MINING  LEASE.— The  fol- 
lowing is  a  form  of  mining  lease : — 

THIS  INDENTURE,  made  this   day  of 

,  in  the  year  of  our  Lord  one  thousand  nine 

hundred  and ,  between 

,  lessor,  and  ,  lessee  or 

tenant,  Witnesseth,  That  the  said  lessor  for  and  in  con- 
sideration of  the  rents,  royalties,  covenants,  and  agreements 
hereinafter  reserved,  and  by  the  said  lessee  to  be  paid,  kept, 
and  performed,  has  granted,  remised,  and  let,  and  by  these 
presents  does  grant,  remise,  and  let  unto  the  said  lessee,  all 
the  following  described  mine  and  mining  property,  situated 

in mining  district.  County  of , 

State  of  California,  to-wit :    

(Description  of  property.) 

Together  with  the  appurtenances    ,  to 

have  and  to  hold  unto  the  said  lessee  or  tenant  for  the  term 

of years  from  the  date  hereof,  expiring  at 

noon  on  the  day  of ,  A.  D. 

,  unless  sooner  forfeited  or  determined  through  the 

violation  of  any  covenant  hereinafter  against  the  said  ten- 
ant   reserved. 

And  in  consideration  of  the  said  demise,  the  said  lessee 
does  covenant  and  agree  with  said  lessor  as  follows,  to- 
wit: — 

To  enter  upon  said  mine  or  premises  and  work  the  same 
mine  fashion,  in  manner  necessary  to  good  and  economical 
mining,  so  as  to  take  out  the  greatest  amount  of  ore  pos- 
sible, with  due  regard  to  the  safety,  development,  and 
preservation  of  the  said  premises  as  a  workable  mine. 

To  work  and  mine  said  premises  as  aforesaid  steadily  and 
continuously  from  the  date  of  this  lease;  and  that  any 
failure  to  work  said  premises  with  at  least 


MINES  AND  MINING.  603 

persons  employed  for  the  space  of consec- 
utive days  may  be  considered  a  violation  of  this  covenant. 

To  well  and  sufficiently  timber  said  mine  at  all  points 
where  proper,  in  accordance  with  good  mining;  and  to 
repair  all  old  timbering  wherever  it  may  become  necessary. 

To  allow  said  lessor  and  his  agents  to  enter  upon  and 
into  all  parts  of  said  mine  for  the  purpose  of  inspection, 
with  use  of  all  passages,  ropes,  windlass,  ladder-ways,  and 
all  other  means  of  ingress  and  egress  for  such  purpose. 

To  not  assign  this  lease,  or  any  interest  thereunder,  and 
to  not  sublet  the  said  premises  or  any  part  thereof,  without 
the  written  assent  of  said  lessor,  and  to  not  allow  any  per- 
son or  persons  except  the  said  lessee  and  his  workmen  to 
take  or  hold  possession  of  said  premises  or  any  part  thereof 
under  any  pretense  whatever. 

To  occupy  and  hold  all  cross  or  parallel  lodes,  dips,  spurs, 
feeders,  crevices,  or  mineral  deposits  of  any  kind,  which 
may  be  discovered  in  working  under  this  lease,  or  in  any 

tunnel  run  to  intersect  said lode,  or  by  the  said 

lessee  or  any  person  or  persons  under  him  in  any  man- 
ner at  any  point  within feet  of  the  center 

line  of  said  lode,  as  the  property  of  said  lessor ;  with  privi- 
lege to  said  lessee  of  working  the  same  as  an  appurtenance 
of  said  demised  premises,  during  the  term  of  this  lease ;  and 
to  not  locate  or  record  the  same,  or  allow  the  same  to  be 
located  or  recorded,  except  in  the  name  of  said  lessor. 

To  keep  at  all  times  the  drifts,  shafts,  tunnels,  and  other 
passages  and  workings  of  said  demised  premises  thor- 
oughly drained  and  clear  of  loose  rock  and  rubbish  of  all 
kinds. 

To  pay  and  deliver  to  said  lessor  as  royalty, 

of  all  ore  to  be  extracted  from  said  premises  during  said 
term,  of  like  assay  to  that  retained  by  said  lessee,  delivered 

at as  soon  as  mined,  without  offset, 

deduction,  or  charge  whatever,  except  lessor's  proportion 
for  packing. 

To  deliver  up  to  said  lessor  the  said  premises,  with  the 

appurtenances  and  all  improvements    in 

good  order  and  condition,  with  all  shafts  and  tunnels  and 
other  passages  thoroughly  clear  of  rubbish  and  drained,  and 
the  mine  in  all  points  ready  for  immediate  continued  work- 
ing (accidents  not  arising  from  negligence  alone  excusing), 
without  demand  or  further  notice,  on  said day  of 


604  BUSINESS  LAWS  FOR  BUSINESS  MEN 

,  A.  D ,  at  noon,  or  at  any  time  previous, 

upon  demand  for  forfeiture. 

And  finally,  upon  the  violation  by  said  lessee,  or  any 
person  under  him,  of  any  covenant  or  covenants  herein- 
before reserved,  the  term  of  this  lease  shall,  at  the  option 
of  said  lessor,  expire,  and  the  same  and  said  premises  with 
the  appurtenances  shall  become  forfeit  to  said  lessor;  and 
said  lessor  or  his  agent  may  thereupon,  after  demand  of 
possession  in  writing,  enter  upon  said  premises  and  dis- 
possess all  persons  occupying  the  same,  with  or  without 
force,  and  with  or  without  process  of  law;  or  at  the  option 
of  said  lessor,  the  said  tenant  and  all  persons  found  in 
occupation  may  be  proceeded  against  as  trespassers  from 
the  beginning  of  said  term  both  as  to  realty  and  the  ore 
served  therefrom ;  or  as  guilty  of  unlawful  detainer. 

Each  and  every  clause  and  covenant  of  this  indenture 
shall  extend  to  the  heirs,  executors,  and  administrators  of 
all  parties  hereto ;  and  to  the  assigns  of  said  lessor ;  and  as 
said  lessor  may  elect,  to  the  assigns  of  said  lessee. 

In  witness  whereof,  The  said  parties,  lessor  and  lessee, 
have  hereunto  set  their  hands  and  seals  the  day  and  year 
first  above  written. 

(Seal.) 

(Seal.) 

(Here  add  acknowledgment  before  Notary  Public.) 

Section  1041.— OIL  AND  GAS  LEASES.— The  law  is 
more  strictly  applied  to  leases  for  oil  and  gas  purposes  than 
to  any  others.  Other  minerals,  being  of  solid  formation, 
are  in  place  within  certain  boundaries,  or,  being  placer, 
yet  are  not  usually  shifting  nor  fluctuating.  Oil  and  gas 
are  fugitive  and  wandering,  and  their  existence  within  the 
limits  of  a  particular  tract  is  uncertain.  Some  of  the  prin- 
ciples of  law  applied  to  oil  and  gas  leases  are  as  follows : — 

{a) — Right  to  Bore  for  Oil  Necessarily  Exclusive. — The 

Supreme  Court  of  the  United  States  has  decided  that  the 
right  to  bore  for  oil  or  gas  within  a  given  area  is  necessarily 
exclusive,  owing  to  the  peculiar  nature  of  the  operations. 
Therefore,  if  the  owner  of  land  leases  to  another  the  right 


MINES  AND  MINING.  605 

to  bore  for  oil  or  gas  within  a  certain  described  area,  he  is 
prohibited,  whether  expressed  in  the  lease  or  not,  from 
boring  another  well  therein  himself,  and  he  may  be  pre- 
vented by  injunction  from  interfering  with  the  exclusive 
rights  of  the  lessee.  (Decided  by  the  Supreme  Court  of  the 
United  States  in  the  case  of  Brown  vs.  Spillman,  which 
decision  is  printed  in  Volume  155  of  the  United  States 
Supreme  Court  Reports,  page  665.) 

(b) — Lessee  Must  Begin  Operations  Within  a  Reason- 
able Time. — If  the  lease  is  silent  as  to  the  time  when  the 
lessee  must  begin  boring,  the  law  fills  the  gap  by  providing 
that  he  must  begin  operations  within  a  reasonable  time. 
What  is  a  reasonable  time  will  depend  upon  the  particular 
case  and  all  the  circumstances ;  for  instance,  the  nature  of 
the  country,  the  ease  or  difficulty  with  which  machinery 
may  be  brought  on  the  ground,  the  availability  of  labor,  etc. 

(c) — Failure  to  Commence  Work  Forfeits  the  Lease. — 

Although  the  lease  is  for  a  definite  term,  yet  a  failure  to 
commence  work  within  the  time  named,  or,  if  no  time  is 
named,  within  a  reasonable  time,  forfeits  the  lease. 

(d) — Work  Must  Be  Prosecuted  with  Diligence. — When 
work  is  once  begun,  it  must  be  carried  on  with  diligence. 
This  does  not  mean  every  day,  or  every  hour.  But  there 
must  not  be  any  unreasonable  or  prolonged  cessation  from 
actual  operations.  The  work  must  be  carried  on  so  stead- 
ily, and  with  such  practical  application,  as  will  show  the 
good  faith  of  the  lessee. 

(e) — Lease  Must  Be  Literally  Complied  With. — An  oil 
lease  must  be  literally  complied  with.  If  the  lessee  agrees 
to  sink  a  well  of  a  certain  bore,  he  will  not  comply  with  his 
lease  by  sinking  a  well  of  a  smaller  bore.  He  must  give  it 
the  size  and  capacity  agreed  on. 


600  BUSINESS  LAWS   FOR  BUSINESS   MEN. 

(f) — Failure  to  Find  Oil. — Where  the  lease  is  for  a  fixed 
period,  and  as  much  longer  as  oil  is  found  or  produced  in 
paying  quantities,  if  oil  is  not  found  in  paying  quantities 
within  the  time,  the  lease  is  forfeited. 

(g) — Net  Proceeds. — Where  the  lessee  agrees  to  pay  the 
lessor  one-tenth,  or  any  other  portion,  of  the  profits  realized 
from  the  sale  of  the  oil  produced,  the  word  "profits"  does 
not  mean  the  gross  output,  but  only  the  net  amount  real- 
ized after  deducting  expenses. 

(h) — Failure  to  Pay  Royalty. — A  failure  to  pay  the  roy- 
alty agreed  on  by  the  lessee  will  forfeit  the  lease,  at  the 
option  of  the  lessor. 

Section  1042.— FORM  OF  OIL  LEASE.— The  following 
is  a  form  of  oil  lease.  The  lease,  if  it  is  to  be  recorded, 
should  be  acknowledged. 

THIS  LEASE,  Made  the day  of , 

A.  D.  19 . . ,  by  and  between 


of  the  County  of ,  State  of  California,  lessor. 

and 


lessee. .. 

WITNESSETH:  That  said  lessor..,  for  and  In  consid- 
eration of  the  rents,  covenants,  and  agreements  hereinafter 
mentioned,  reserved,  and  contained  on  the  part  and  behalf 
of  said  lessee. .  to  be  paid,  kept,  and  performed,  does  by 
these  presents  grant,  remise,  and  let  unto  said  lessee. .,  the 
exclusive  right,  privilege,  and  easement  of  sinking,  boring, 
developing,  and  working  to  any  desired  depth,  wells  for  the 
extraction  of  natural  gas,  petroleum,  kerosene,  coal  oil,  and 
other  oil,  gaseous  and  volatile  substances,  and  of  taking 
from  such  wells,  and  appropriating,  having,  using,  and 
disposing  of  any  and  all  of  said  substances,  in  all  the  certain 

tract  of  land  situate  in  the  County  of ,  State 

of  California,  described  as  follows,  to-wit : , 


MINES  AND  MINING,  607 

(Here  describe  land.) 


and  also  the  right,  privilege,  and  easement  of  conducting 
and  carrying  away  from  said  wells  and  other  wells  that 
may  be  sunk  or  bored  by  said  lessee. .  on  adjacent  and 
contiguous  lands  through  pipes  underground,  as  herein- 
after provided,  all  natural  gas,  petroleum,  kerosene,  coal  oil, 
and  other  oil,  gaseous,  and  volatile  substances  extracted 
from  said  wells. 

To  have  and  to  hold  all  of  said  rights,  privileges,  and 

easements  unto  said  lessee.  .  exclusively  from  the 

day  of ,  A.  D.  19. .,  for  and  during  the  term 

of years,  with  the  right  to  said 

lessee. .  to  a  renewal  of  this  lease  from  said  lessor. .  for  a 

second  term  of years,  from  and  after  the 

expiration  hereof  upon  the  terms  hereinafter  provided. 

Said  lessor.,  further  agrees  that  said  lessee.,  may  oc- 
cupy and  use  at  one  or  more  places  on  said  tract  of  land, 

an  area  not  to  exceed acres, 

upon  which  to  sink  a  well,  wherever  a  well  may  be  bored 
thereon.  A  piece  of  land  shall  be  selected  without  un- 
necessary injury  to  the  lessor..,  of  such  shape  as  the 
lessee . .  may  desire  for  boring  such  wells  and  operating  the 
machinery  used  in  boring,  working,  and  casing  the  same, 
and  care  and  storage  of  the  product,  said  piece  of  land  to  be 
so  used  so  long  during  the  term  of  this  lease  as  is  necessary 
for  said  purposes. 

It  is  further  understood,  that  should  any  natural  gas, 
petroleum,  kerosene,  coal  oil,  or  other  oil,  gaseous  or  vola- 
tile substances  be  produced  from  said  wells,  or  from  wells 
sunk  or  bored  by  the  lessee  on  adjacent  or  contiguous 
lands,  the  said  lessee  shall  have  the  right  to  enter  upon 
said  lands  and  dig  trenches  from  said  wells  through  said 
lands,  without  unnecessary  injury  to  the  lessor;  and  lay 
pipes  therein  for  conveying  away  therefrom  any  and  all 
of  said  substances,  provided  the  top  or  upper  surface  of 

said  pipes  are  laid  at  least  inches  below  the 

surface  of  the  ground,  and  the  trenches  in  which  they  are 
laid  are  well  filled  in  with  earth  so  as  not  to  interfere  with 
the  full  and  free  cultivation  or  other  use  or  enjoyment  of 
said  lands  by  the  lessor,  but  no  such  trenches  are  to  be  dug 


608  BUSINESS  LAWS  FOB    BUSINESS  MEN. 

SO  as  to  interfere  with  the  use  of  or  to  injure 

or  other  improvements  on  said  prem- 
ises at  the  time  such  trenches  are  dug,  and  none  are  to  be 

dug  through  any  

without  giving  the  owner  written  notice  thereof,  and  pay- 
ing therefor  the  value  of  all  property  injured  or  destroyed 
thereby;  and  no  pipe  is  to  be  laid  across  any  creek  or 
slough  so  as  in  any  way  to  obstruct  or  interfere  with  the 
free  and  full  flow  of  water  through  the  same,  and  all  pipes 
laid  through  said  lands  are  to  be  made  tight  and  secure 
so  as  not  to  permit  the  escape  therefrom  of  any  substances 
injurious  to  any  property,  and  should  any  such  substance 
escape  from  such  pipes  and  injure  any  such  property  (and 
the  lessee  should  fail  to  repair  such  pipes  and  prevent  such 

escape  and  stop  such  injury,  within  days 

after  receiving  from  the  lessor  a  written  notice  so  to  do), 
then  the  lessee  shall  be  liable  for  and  shall  pay  to  the  owner 
all  damages  so  caused. 

It  is  further  understood  and  agreed  by  and  between  the 
parties  hereto,  that  the  lessee,  so  long  as  this  lease  remains 
in  full  force,  is  to  be  the  sole  and  exclusive  owner  for  and 
during  the  full  term  of  this  lease,  and  of  every  renewal 
thereof,  of  all  natural  gas,  petroleum,  kerosene,  coal  oil, 
and  other  oil,  gaseous  and  volatile  substances  extracted 
from  wells  on  said  land ;  and  the  lessor  shall  have  no  right 
during  the  continuance  of  this  lease  or  any  renewal  thereof 
before  default  in  the  payment  of  the  royalty  hereafter  men- 
tioned, to  bore  or  sink  any  well  or  wells  for  natural  gas, 
petroleum,  kerosene,  coal  oil,  or  other  oil,  gaseous  or  vola- 
tile substances  on  any  of  said  land,  or  to  use  or  take  any 
such  substances  therefrom ;  but  the  lessor  is  at  all  times 
to  be  the  sole  and  exclusive  owner  of  all  water  that  may 
flow  therefrom,  provided  that  the  lessee  may  use  sufficient 
of  said  water  to  operate  and  run  any  steam  engines  and 
boilers  used  at  or  near  said  well  for  boring  or  working  the 
same,  and  subject  to  the  uses  herein  provided,  shall  permit 
the  flow  of  water  from  said  wells  for  the  use  and  benefit 
of  the  lessor,  so  far  as  the  same  may  flow  without  inter- 
fering with  the  proper  use  of  the  wells  by  the  lessee. 

And  the  lessee  shall  have  the  right  at  all  times  during  the 
continuance  of  this  lease  or  any  renewal  thereof,  to  enter 
upon  and  pass  over  said  land  to  and  from  all  wells  bored 
thereon  as  herein  provided ;  but  he  is  to  do  no  damage  to 
any  of  said  premises  without  paying  a  fair  and  reasonable 


MINES  AND  MINING.  609 

compensation  therefor  within days  after  such 

damage  is  done,  and  will  give  the  lessor  notice  in  writing 
before  commencing  to  bore  a  well  on  any  portion  of  said 
land. 

It  is  further  understood  and  agreed,  that  the  lessee  shall 
at  all  times  during  the  existence  of  this  lease  have  the  right 
to  enter  upon  and  remove  from  said  land  all  improvements, 
machinery,  well-casing,  and  all  other  property  placed  by 
him  thereon  or  in  wells  thereon. 

It  is  further  understood  and  agreed,  that  the  lessee  shall, 
so  long  as  this  lease  remains  in  force,  pay  to  the  lessor  the 

value  at  the  well  or  wells  of  the  part 

of  all  the  gas,  oil,  or  other  products  herein  mentioned,  said 
value  to  be  ascertained  and  fixed  at  the  point  of  production, 

on  or  before  the   day  of  each  month,  and 

payment  shall  be  made  on  the day  of  each 

and  every  month  for  all  gas,  oil,  or  other  products  produced 
during  the  preceding  calendar  month. 

It  is  expressly  and  distinctly  understood  and  agreed  be- 
tween the  parties  hereto,  that  it  shall  at  all  times  be  the 
privilege  of  the  lessee  to  discontinue  and  terminate  this 
lease  by  a  failure  to  pay  any  installment  of  monthly  royalty 

within   days  after  the  same  becomes  due  as 

herein  provided,  and  such  failure  shall  operate  ipso  facto 
as  a  surrender  of  this  lease,  and  upon  such  surrender  the 
lessee  shall  be  discharged  from  all  liability  to  pay  any  rent 
to  become  due  by  the  terms  of  this  lease. 

And  should  any  well  or  wells  bored  or  sunk  on  said  land 
as  herein  provided  be  abandoned  by  the  lessee,  he  shall 

give  the  lessor  days'  written  notice  of  his 

intention  to  abandon  the     same.     If  the  lessor  so  desires, 

and  shall  pay  to  said  lessee  within    days 

the  costs  of  the  casing  already  in  said  well  or  wells,  the 
lessee  agrees  to  sell  the  same  to  the  lessor  at  the  actual 
cost  of  said  casing  delivered  at  the  mouth  of  the  well,  and 
thereupon  the  lessor  shall  become  the  owner  of  such  well 
or  wells  and  all  of  the  products  thereof  of  any  kind  or 
nature. 

Nothing  herein  contained  is  to  be  so  construed  as  to  affect 
the  right  of  the  lessor  to  fully  possess,  occupy,  and  enjoy 
said  lands  subject  to  the  conditions  herein  expressed  in 
favor  of  the  lessee. 

It  is  understood  and  agreed  between  the  parties  hereto 
that   wherever   the   term   lessor    is   used    in    this    lease,    it 


610  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

extends  to  and  includes  the  heirs,  executors,  administrators, 
and  assigns  of  the  lessor  named  herein ;  and  the  term  lessee 
extends  to  and  includes  the  heirs,  executors,  administrators, 
and  assigns  of  the  lessee  herein  named. 

And  now  it  is  further  understood  and  agreed  by  all  the 
parties  hereto,  that  if  none  of  said  natural  gas,  oil,  or  other 
kindred  substance  is  found  in  or  near  said  lands,  and  the 
lessee  does  not  proceed  to  develop  said  leased  lands  within 

months  from  this  date,  and 

complete  a  well  within months  there- 
after, then  this  lease  shall  terminate  and  be  of  no  value, 
otherwise  to  remain  in  full  force  and  effect. 

In  witness  whereof,  the  said  parties  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

(Seal.) 

(Seal.) 

Section  1043.— MINING  DEEDS.— A  mining  claim  may 
be  sold  and  transferred  by  deed,  either  before  or  after  a 
patent  has  been  applied  for  or  obtained.  The  locator  of  a 
mining  claim  obtains  the  legal  title  by  his  location,  and 
may  transfer  his  title  at  any  time. 

Section  1044.— FORM  OF  MINING  DEED.— The  fol- 
lowing is  a  form  of  mining  deed  for  quartz.  If  used  for 
placer  claim,  the  description  should  be  changed  so  as  to 
apply  :— 

THIS  INDENTURE,  made  the   day  of 

,  in  the  year  of  our  Lord  one  thousand  nine 

hundred  and ,  between 

,  of  the  County  of ,  and  State 

of  California,  party  of  the  first  part,  and / 

,  of  the  County  of ,  and  State 

of  California,  party  of  the  second  part; 

Witnesseth,  That  the  said  party  of  the  first  part,  for  and 
in  consideration  of  the  sum  of Dol- 
lars, lawful  money  of  the  United  States  of  America,  to  him 
in  hand  paid  by  the  said  party  of  the  second  part,  the 
receipt  whereof  is  hereby  acknowledged,  hath  granted,  bar- 
gained, sold,  remised,  released,  and  forever  quitclaimed, 
and   by  these  presents   does   grant,   bargain,   sell,   remise, 


MINES  AND  MINING.  611 

release,  and  forever  quitclaim,  unto  the  said  party  of  the 

second  part,  his  heirs  and  assigns,  the  

lode,  as  located,  surveyed,  recorded,  and  held  by  said  party 
of  the  first  part,  situated  in mining  dis- 
trict,   County,  State  of  California,  and 

named  and  called Mine,  together  with 

all  the  dips,  spurs,  and  angles,  and  also  all  the  metals,  ores, 
gold  and  silver  bearing  quartz,  rock,  and  earth  therein, 
and  all  the  rights,  privileges,  and  franchises  thereto  inci- 
dent, appendant,  and  appurtenant,  or  therewith  usually 
had  and  enjoyed ;  and  also,  all  and  singular  the  tenements, 
hereditaments,  and  appurtenances  thereunto  belonging,  or 
in  any  wise  appertaining,  and  the  rents,  issues,  and  profits 
thereof;  and  also,  all  the  estate,  right,  title,  interest,  prop- 
erty, possession,  claim,  and  demand  whatsoever,  as  well  in 
law  as  in  equity,  of  the  said  party  of  the  first  part,  of,  in, 
or  to  the  said  premises,  and  every  part  and  parcel  thereof, 
with  the  appurtenances. 

To  have  and  to  hold,  all  and  singular,  the  said  premises, 
together  with  the  appurtenances  and  privileges  thereto  in- 
cident, unto  the  said  party  of  the  second  part,  his  heirs 
and  assigns  forever.  In  witness  whereof  the  said  party 
of  the  first  part  has  hereunto  set  his  hand  and  seal  the 
day  and  year  first  above  written. 

(Seal.) 

(Here  add  acknowledgment  before  Notary.) 

Section    1045.— WORKING   MINE   ON    SHARES.— A 

valid  agreement  may  be  made  for  the  working  of  a  mine 
on  shares,  and  such  agreement  does  not  constitute  and 
will  not  be  considered  a  lease  of  the  mining  claim.  Under 
such  a  contract,  the  parties  have  a  common  interest  in  the 
products  of  the  mine  when  taken  out.  Such  a  contract  does 
not  create  the  relation  of  landlord  and  tenant,  but  fixes  a 
rule  of  compensation  for  services  rendered.  It  is,  in  all  its 
essential  features,  a  contract  for  labor  to  be  performed  and 
to  be  paid  for  by  a  share  of  the  profits  realized  from  such 
labor.  (Decided  by  the  Supreme  Court  of  California  in  the 
case  of  Hudepahl  vs.  Liberty  Hill  Mining  Co.,  which  de- 
cision is  printed  in  Volume  80  of  the  California  Reports, 
page  553.) 


612  BUSINESS  LAWS  FOB  BUSINESS  MEN. 

Section  1046.— WHEN  BOUNDARY  MARKS  ARE 
SUFFICIENT. — The  boundary  marks  are  always  sufficient 
to  sustain  a  location  if  they  are  so  distinct  and  plain  that  the 
claim  can  be  identified  on  the  ground.  In  a  case  in  Siskiyou 
County,  two  adjoining  mining  claims  were  each  marked  at 
the  corners  by  four  stakes  about  a  foot  and  a  half  long,  flat- 
tened on  two  sides,  and  driven  into  the  ground  about  four 
inches ;  two  stakes  being  at  the  ends  of  the  dividing  line  com- 
mon to  both  claims ;  some  stakes  being  in  the  brush,  and  oth- 
ers in  the  open  ground.  In  the  middle  of  the  dividing  line 
was  a  tree  blazed  on  both  sides,  on  one  of  which  the  notices 
of  location  were  posted,  describing  the  claims  by  courses  and 
distances,  running  from  the  tree  to  a  stake,  and  from  stake 
to  stake  to  point  of  beginning.  The  ledge  on  both  claims 
had  been  sufficiently  developed  to  show  its  existence  and 
direction.  The  Supreme  Court  held  that  the  law  as  to 
marking  the  location  on  the  ground  was  sufficiently  com- 
plied with,  under  the  most  stringent  construction  of  the 
law.  (Decided  by  the  Supreme  Court  of  California  in  the 
case  of  Eaton  vs.  Norris,  which  decision  is  printed  in  Vol- 
ume 131  of  the  California  Reports,  page  561.) 

Section  1047.— ERROR  IN  DESCRIPTION  IN  LOCA- 
TION NOTICE.— The  description  in  a  notice  of  location 
of  a  mining  claim,  specifying  the  number  of  acres  claimed, 
is  sufficient,  if  it  designate  the  land  by  the  adjoining  tracts 
on  the  north,  east,  and  south,  and  by  unoccupied  lands  on 
the  west;  and  the  insertion  of  the  wrong  legal  subdivisions 
will  not  invalidate  it.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Duryea  vs.  Boucher,  which  decision 
is  printed  in  Volume  67  of  the  California  Reports,  page  141.) 

Section  1048.— CHARACTER  OF  ANNUAL  ASSESS- 
MENT WORK.— Whether  the  character  of  the  annual 
assessment  work  is  of  the  kind  required  by  law  is  always 
a  question  of  fact,  to  be  determined  by  the  surrounding 
circumstances.     Not  all  expenditures  made  with  a  view  to 


MINES  AND  MINING.  613 

working  a  mine  would  be  considered  work  expended  upon 
a  mine  for  the  purpose  of  holding  it ;  as,  for  instance,  work 
done  at  a  distance  from  the  mine  in  the  construction  of  a 
mill.  On  the  other  hand,  it  has  been  decided  that  the 
services  of  a  watchman  looking  after  the  buildings  erected 
to  work  a  mine  properly  constitutes  assessment  work, 
though  the  mine  is  idle  at  the  time.  (Decided  by  the  Su- 
preme Court  of  California  in  the  case  of  Altoona  Quick- 
silver Mining  Co.  vs.  Integral  Quicksilver  Mining  Co., 
which  decision  is  printed  in  Volume  114  of  the  California 
Reports,  page  100.) 

Section  1049.— TIME  WITHIN  WHICH  RELOCA- 
TION CAN  BE  MADE.— The  law  of  California  gives  to 
the  occupant  of  a  mining  claim  thirty  days  after  the  expira- 
tion of  the  year  within  which  to  file  his  affidavit  of  assess- 
ment work  done,  in  the  office  of  the  County  Recorder ;  and 
the  mine  is  not  open  to  relocation  until  after  the  expira- 
tion of  the  thirty  days.  For  instance,  the  occupant  has 
the  whole  of  the  calendar  year  succeeding  the  date  of  his 
location  in  which  to  do  his  assessment  work;  then  he  has 
thirty  days  more  in  which  to  file  his  affidavit  of  work  done 
with  the  County  Recorder,  and  no  relocation  can  be  valid 
within  such  times.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Harris  vs.  Kellogg,  which  decision 
is  printed  in  Volume  117  of  the  California  Reports,  page 
484.) 

Statutes  of  1891,  page  219. 

Section  1050.— RESUMPTION  OF  WORK.— As  already 
stated,  the  locator  of  a  mining  claim  must  expend  upon  it 
in  labor  or  improvements  $100  each  year,  and  non-compli- 
ance with  this  requirement  renders  the  claim  subject  to 
relocation  by  others,  unless,  before  such  relocation,  the 
original  locator,  his  heirs,  assigns,  or  legal  representatives, 
have  resumed  work  upon  the  claim.  This  resumption  of 
work,  however,  must  be  bona  fide  in  character  and  with  the 


614  BUSINESS   LAWS  FOB  BUSINESS  MEN. 

intention  of  completing  the  amount  of  work  due.  It  is 
not  sufficient,  when  the  claim  has  become  subject  to  reloca- 
tion, for  the  claimant  to  go  upon  it  and  do  a  few  hours'  or 
a  few  days'  work,  and  then  quit,  thinking  that  he  has  thus, 
by  such  perfunctory  resumption,  done  all  that  is  sufficient 
to  hold  his  claim  for  another  year ;  he  must  resume  work 
in  good  faith,  with  the  intention  of  completing  the  full 
amount  required  by  law.  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  McCormick  vs.  Baldwin,  which 
decision  is  printed  in  Volume  104  of  the  California  Reports, 
page  227.) 

Section  1051.— FAILURE  TO  COMPLY  WITH  LO- 
CAL CUSTOMS  IN  WORKING  MINING  CLAIMS.— A 

right  to  hold  and  work  a  mining  claim  when  acquired  may 
be  lost  by  a  failure  or  neglect  to  comply  with  the  rules 
and  regulations  of  the  miners,  relative  to  the  acquisition 
and  tenure  of  claims,  in  force  in  the  district  where  the 
claim  is  located ;  and  if  such  rules  and  regulations  are  not 
complied  with  by  those  holding  claims  in  the  district,  the 
ground  becomes  once  more  open  to  the  occupation  of  the 
next  comer.  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  St.  John  vs.  Kidd,  which  decision  is  printed 
in  Volume  26  of  the  California  Reports,  page  263.) 

Section  1052.— OVERLAPPING  LOCATIONS.— It  is 
familiar  history  in  mining  districts  that  claims  have  often 
been  found  to  overlap  one  another  to  a  greater  or  less 
extent.  When  this  occurs,  the  law  of  California  is,  in  so 
far  as  the  ground  taken  was  vacant,  each  location,  if  prop- 
erly made  in  other  respects,  is  valid  and  sufficient  to  that 
extent.  As  to  the  ground  actually  covered  by  the  two 
locations,  the  right  will  be  determined  by  ascertaining 
which  location  was  first  made.  If  A  makes  a  location 
to-day,  and  B  makes  a  location  to-morrow,  and  the  location 
of  B  covers  a  part  of  the  ground  located  by  A  the  day  before, 
B  will  lose  so  much  of  his  location  as  overlaps  the  location 


MINES  AND  MINING.  615 

of  A;  for  A  was  first  in  time,  and  thus  acquired  a  prior 
right.  But  B  will  not  lose  his  whole  location.  So  much 
of  it  as  does  not  overlap  the  prior  location  will  be  good, 
and  he  can  hold  that  much.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  Doe  vs.  Tyler,  which 
decision  is  printed  in  Volume  73  of  the  California  Reports, 
page  21.) 

Section  1053.— INTERSECTING  VEINS.— Where  two 
veins  or  lodes  of  mineral  belonging  to  different  owners 
intersect,  the  owner  of  the  vein  which  was  first  located  has 
the  right  to  the  ore  in  the  space  of  intersection,  but  the 
other  owner  has  a  right  of  way  through  such  space  for  the 
purpose  of  working  his  vein.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  Wilhelm  vs.  Silvester, 
which  decision  is  printed  in  Volume  101  of  the  California 
Reports,  page  358.) 

Section  1054.— RULE  THAT  END  LINES  SHALL 
PARALLEL  EACH  OTHER.— The  Revised  Statutes  of 
the  United  States  say  that  "the  end  lines  of  each  claim 
shall  be  parallel  with  each  other."  But  this  does  not  mean 
that  the  two  end  lines  must  be  exactly  parallel.  In  the 
case  of  Doe  vs.  Sanger,  a  San  Bernardino  County  mining 
suit,  the  Supreme  Court  of  California  stated  the  true  rule 
as  follows :  "It  has  been  held  that  the  provisions  of  the 
Federal  statutes  relating  to  lode  claims  were  passed  with 
the  understanding,  founded  upon  the  general  practice  of 
miners,  that  the  surface  locations  of  such  claims  will  be 
made  lengthwise  along  the  general  direction  of  the  lode 
or  vein  in  the  general  form  of  a  parallelogram,  with  the 
side  lines  along  the  lode,  and  the  end  lines  across  it.  But 
suppose  that  a  surface  location  should  be  made,  for  instance, 
in  the  shape  of  an  octagon.  In  such  a  case  there  would  be 
no  end  lines  and  no  side  lines,  and  if  the  locator  could  go 
outside  his  lines  in  one  direction  he  could  do  so  in  eight 
directions,  and  encroach  upon  his  neighbors  from  every 


610  BUSINESS  LAWS  FOR  BUSHSTESS  MEN. 

point  of  the  compass.  If,  however,  a  location  is  made  in 
substantial  compliance  with  the  intent  of  the  statute — that 
is,  where  there  are  two  side  lines  running  along  the  course 
of  the  vein,  and  two  shorter  end  lines  running  across  it, 
so  that  the  two  sets  of  lines  are  distinct,  and  apparent — 
such  a  location  is  not  void,  but  gives  the  right  to  follow  a 
vein  laterally,  although  the  original  end  lines  may  not  be 
exactly  parallel,  or  although  they  may  differ  from  a  true 
parallel."  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Doe  vs.  Sanger,  which  decision  is  printed 
in  Volume  83  of  the  California  Reports,  page  203.) 

Section  1055.  —  EXTRA-LATERAL  RIGHT,  OR 
RIGHT  TO  PURSUE  THE  VEIN  OR  LODE  ON  ITS 
DIP  BEYOND  THE  SIDE  LINES  OF  THE  CLAIM.— 

Section  2322  of  the  Revised  Statutes  of  the  United  States 
provides :  "The  locators  of  all  mining  locations  shall  have 
the  exclusive  right  of  possession  and  enjoyment  of  all  the 
surface  included  within  the  lines  of  their  locations,  and 
all  veins,  lodes,  and  ledges  throughout  their  entire  depth 
the  top  or  apex  of  which  lies  inside  of  such  surface  lines 
extended  downward  vertically,  although  such  veins,  lodes, 
or  ledges  may  so  far  depart  from  a  perpendicular  in  their 
course  downward  as  to  extend  outside  of  the  vertical  side 
lines  of  such  surface  locations."  A  mineral  vein  or  lode 
seldom  or  never  descends  vertically  into  the  earth,  but  on 
its  downward  course  makes  an  angle  with  the  vertical — 
or,  in  popular  terms,  it  does  not  go  straight  down,  but  in 
a  slanting  direction — so  that,  if  followed  far  enough  into 
the  interior  of  the  earth,  it  will  eventually  be  found  to  ex- 
tend outside  of  the  side  lines  of  the  claim.  In  other  words, 
the  vein  eventually  reaches  the  point  in  the  interior  of  the 
earth  where,  if  a  vertical  line  were  run  to  the  surface  it 
would  strike  a  point  outside  the  surface  boundaries  of  the 
claim.  The  right  to  thus  follow  the  vein  on  its  downward 
course  beyond  the  side  lines  of  the  claim  is  sometimes  called 
the   extra-lateral   right,   and   is   conferred   by   the   Section 


MINES  AND  MINING.  617 

of  the  Revised  Statutes  of  the  United  States  just  quoted. 
In  thus  following  the  vein  on  its  dip,  the  miner  is  confined, 
however,  to  that  part  of  it  which  is  found  between  the  end 
lines  of  his  claim  extended  in  their  own  direction.  The 
law  prescribes  that  the  end  lines  of  a  claim  shall  be  parallel 
with  each  other.  Yet  for  the  full  enjoyment  of  this 
extra-latefal  right  it  is  important  that  the  end  lines  of 
the  claim  should  follow  this  requirement  of  parallelism ; 
for  it  has  been  held  by  the  courts  that  where  the  end  lines 
were  not  parallel,  but  converged  in  the  direction  of  the 
dip  of  the  vein,  the  miner  could  not  pursue  the  vein  outside 
of  his  side  lines  beyond  the  point  where  his  converging  end 
lines  extended  met.  On  the  other  hand,  where  the  end 
lines  diverged  in  the  direction  of  the  dip,  thus  making  the 
portion  of  the  vein  included  within  them  larger  the  farther 
such  end  lines  were  extended,  it  has  been  held  that  the 
miner  could  not  take  the  ore  from  any  greater  length  of 
vein  outside  of  his  side  lines  than  was  included  between  his 
end  lines  as  laid  down  on  the  ground. 

Section  1056.— DAMAGES  FOR  TRESPASS  ON  MIN- 
ING CLAIM. — One  who  unintentionally,  and  in  the  honest 
belief  that  he  is  lawfully  exercising  a  right  which  he  has, 
enters  upon  the  mining  property  of  another  and  removes 
his  ore,  is  liable  in  damages  for  its  value,  and  for  no  more. 
He  may  limit  the  recovery  of  the  owner  by  deducting 
from  the  value  of  the  ore  at  the  mouth  of  the  shaft  the  cost 
of  mining  and  transporting  it  to  that  point.  But  one  who 
wilfully  and  intentionally  takes  ores  from  the  land  of  an- 
other is  liable  to  him  for  the  full  value  of  the  property  taken, 
at  the  time  of  his  conversion  of  it,  without  any  deduction 
for  the  labor  bestowed  or  expense  incurred  in  removing  it 
and  preparing  it  for  the  market. 

Section  1057.— STATE  HOMESTEAD  ON  MINING 
CLAIM. — The  locator  of  a  mining  claim  may,  under  the 
State  law.  declare  a  homestead  upon  it,  if  he  is  living  on 


618  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

it;  and  when  that  is  done  it  has  all  the  characteristics  of 
a  homestead  declared  upon  any  other  character  of  land; 
subject,  however,  to  the  holder  complying  with  the  require- 
ments of  the  law  relating  to  the  holding  of  mining  claims 
until  issue  of  patent  from  the  United  States  Government. 
(Decided  by  the  Supreme  Court  of  California  in  the  case 
of  Gaylord  vs.  Place,  which  decision  is  printed  in  Volume 
98  of  the  California  Reports,  page  472.) 

Section  1058.— SCHOOL  LANDS.— The  law  of  Congress 
granting  certain  agricultural  lands  to  the  State  of  Califor- 
nia for  school  purposes,  and  providing  that  mineral  lands 
shall  not  be  subdivided  into  sections,  public  lands  belong- 
ing to  the  State  under  said  Act,  if  agricultural,  which  the 
proper  United  States  officials  have  platted  into  a  section 
and  classified  as  agricultural  lands,  and  concerning  which 
the  Receiver  of  the  public  land  office  has  certified  that  the 
State's  title  thereto  under  said  Act  is  free  from  adverse 
claims,  are  not,  after  their  disposal  by  the  State,  subject 
to  re-entry  as  mineral  lands ;  the  determination  of  the 
United  States  officials  that  the  lands  were  agricultural 
being  conclusive  against  a  collateral  attack.  (Decided  by 
the  Supreme  Court  of  California  in  the  case  of  Saunders 
vs.  La  Purisima  Gold  Mining  Co.,  which  decision  is  printed 
in  Volume  125  of  the  California  Reports,  page  159.) 

Section  1059.— AUTHORITY  OF  MINE  SUPERIN- 
TENDENTS TO  PURCHASE  SUPPLIES.— Mine  Super- 
intendents, by  virtue  of  their  position,  have  authority  to 
purchase  all  supplies  necessary  for  the  operation  of  the 
mine,  and  when  they  do  so  the  owners  will  be  bound  to 
pay  for  them.  In  one  case  it  was  held  by  our  Supreme 
Court  that  the  owner  of  the  mine  was  bound  to  pay  for 
provisions  ordered  by  the  Superintendent  for  a  boarding 
house  at  which  the  miners  lived,  and  the  Court  said :  "The 
record  discloses  the  fact  that  it  was  absolutely  necessary 
that  provisions  should  be  furnished  this  boarding-house, 


MINES  AND  MINING.  .  61& 

in  order  that  the  mine  might  continue  in  operation ;  and  it 
would  seem  that,  aside  from  any  express  authority  from 
the  defendant  to  purchase  these  articles,  and  regardless  of 
the  question  of  ostensible  agency,  the  respective  Superin- 
tendents of  the  mine,  by  virtue  of  their  positions  alone, 
had  the  power  to  bind  the  defendant  for  the  payment  of 
these  goods."  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Heald  vs.  Hendy,  which  decision  is  printed 
in  Volume  89  of  the  California  Reports,  page  632.) 

Section  1060.  —  HYDRAULIC  MINING.— Hydraulic 
mining,  as  the  term  is  used  in  the  laws  of  California,  is 
mining  by  means  of  the  application  of  water,  under  pressure, 
through  a  nozzle,  against  a  natural  bank.  It  may  be  car- 
ried on  in  this  State  wherever  and  whenever  it  can  be  done 
without  material  injury  to  the  navigable  streams,  or  the 
lands  adjacent  thereto. 

Civil  Code,  Sections  1424,  1425. 

Section  1061.— TAILINGS  AND  DEBRIS.— No  person 
or  corporation  has  the  right  to  cover  his  neighbor's  land 
with  debris  from  mine  or  mill,  nor  to  permit  any  of  the 
tailings  or  refuse  matter  to  flow  or  be  placed  on  the  land 
of  another.  For  the  violation  of  another's  right  of  use 
and  possession,  by  flowing  or  covering  his  land  with  debris, 
or  by  causing  his  soil  to  wash  or  cave,  the  owner  of  the 
mine  will  be  liable  in  damages,  and  the  injury  may  be 
stopped  by  injunction. 

Section  1062.— CALIFORNIA  DEBRIS  COMMISSION. 

— The  Congress  of  the  United  States  passed  an  Act,  in 
1893,  creating  a  commission  called  the  California  Debris 
Commission.  The  purpose  of  the  law  was  to  provide  a 
means  for  controlling  the  deposit  of  debris  in  the  rivers 
and  streams  in  that  part  of  California  constituting  the  San 
Joaquin  and  Sacramento  watersheds.  As  enacted,  after 
creating  the  California  Debris  Commission,  it  declares,  for 


620  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

the  purpose  of  the  Act,  "hydraulic  mining"  and  "mining 
by  hydraulic  process"  to  have  the  meaning  and  application 
given  to  those  terms  in  the  State  of  California.  The  Act 
prohibits  and  declares  unlawful  such  hydraulic  mining 
"directly  or  indirectly  injuring  the  navigability  of  said  river 
systems,  carried  on  in  said  territory,  other  than  as  per- 
mitted under  its  provisions."  From  these  provisions  it 
seems  quite  clear  that  its  real  intent  and  meaning  is  to 
prohibit  and  make  unlawful  any  and  all  hydraulic  mining 
in  the  territory  drained  by  the  Sacramento  and  San  Joaquin 
river  systems  in  the  State  of  California,  directly  or  indi- 
rectly injuring  the  navigability  of  said  river  systems ;  and 
to  permit  it  in  all  cases  where  the  work  can  be  prosecuted 
without  such  injury  to  the  navigability  of  said  river  systems 
or  to  the  lands  adjacent  thereto ;  and  that,  in  order  to  prop- 
erly determine  the  facts  upon  which  the  legislative  will  is 
to  act,  a  skilled  commission  is  created,  whose  duty  it  is  to 
ascertain  and  determine  what  will  or  will  not  cause  the 
prohibited  injury,  and  to  prescribe  the  character  of  im- 
pounding works,  and  the  extent  to  which  hydraulic  mining 
in  the  territory  described  may  be  carried  on  without  causing 
such  injury. 

Section  1063.— CONSOLIDATION  OF  MINING  COR- 
PORATIONS.— Two  or  more  mining  corporations  own- 
ing claims  lying  in  the  same  vicinity  may  consolidate 
upon  terms  agreed  upon  by  the  respective  Boards 
of  Directors  or  Trustees  of  such  corporations,  provided 
the  written  consent  of  stockholders  representing  two- 
thirds  of  the  capital  stock  of  each  company  be  obtained. 
Such  consolidation  does  not  relieve  the  respective  com- 
panies or  their  stockholders  of  existing  indebtedness. 
In  case  of  such  consolidation,  notice  of  the  same  must 
be  given  by  advertising  for  at  least  one  month  in  a 
newspaper  in  the  county  where  the  mining  property  is 
situated,  and  also  in  a  newspaper  published  in  the  county 
where    the    principal    place    of    business    of    any    of    such 


MINES  AND  MINING.  621 

corporations  shall  be.  When  the  consolidation  is  completed 
a  certificate  thereof,  containing  the  manner  and  terms  of 
the  consolidation,  must  be  filed  in  the  office  of  the  County- 
Clerk  of  the  county  in  which  the  original  certificate  of 
incorporation  of  any  of  said  companies  was  filed,  and  a  copy 
thereof  must  be  filed  in  the  office  of  the  Secretary  of  State. 
Such  certificate  must  be  signed  by  a  majority  of  each  Board 
of  Directors  or  Trustees  of  the  original  companies;  and 
they  must  within  thirty  days  after  the  filing  of  such  certifi- 
cate, and  after  at  least  ten  days'  public  notice,  call  a  meet- 
ing of  the  stockholders  of  all  of  said  companies  so  consoli- 
dated, to  elect  a  Board  of  Trustees  or  Directors  for  the 
consolidated  company  for  the  ensuing  year.  The  said  cer- 
tificate must  also  contain  all  the  matters  required  to  be 
stated  in  Articles  of  Incorporation. 

Civil  Code,  Section  361. 

(a) — Transfer  of  Stock  in  Mining  Corporations. — The 
Civil  Code  of  California,  Sections  586,  587,  makes  the  fol- 
lowing particular  provisions  about  the  transfer  of  stock 
in  mining  corporations :  "Any  corporation  organized  in  this 
State  for  the  purpose  of  mining  or  carrying  on  mining 
operations  in  or  without  this  State,  may  establish  and  main- 
tain agencies  in  other  States  of  the  United  States,  for  the 
transfer  and  issuing  of  their  stock;  and  a  transfer  or  issue 
of  the  stock  at  any  such  transfer  agency,  in  accordance 
with  the  provisions  of  its  By-Laws,  is  valid  and  binding 
as  fully  and  effectually  for  all  purposes  as  if  made  upon 
the  books  of  such  corporation  at  its  principal  office  within 
this  State.  The  agencies  must  be  governed  by  the  By- 
Laws  and  the  Directors  of  the  corporation.  All  stock  of 
such  corporation,  issued  at  a  transfer  agency,  must  be 
signed  by  the  President  and  Secretary  of  the  corporation, 
and  countersigned  at  the  time  of  its  issue  by  the  agent 
having  charge  of  the  transfer  agency." 

Civil  Code,  Sections  586,  587. 


622  BUSINESS  LAWS  FOR    BUSINESS   MEN. 

(b) — Hours  of  Work  in  Underground  Mines. — The  period 
of  employment  for  all  persons  working  in  underground 
mines  in  search  of  minerals,  whether  base  or  precious,  or 
who  are  engaged  in  such  underground  mines  for  other  pur- 
poses, or  who  are  employed  or  engaged  in  other  under- 
ground workings  whether  for  the  purpose  of  tunneling, 
making  excavations  or  to  accomplish  any  other  purpose  or 
design,  or  who  are  employed  in  smelters  and  other  institu- 
tions for  the  reduction  or  refining  of  ores  or  metals,  shall 
not  exceed  eight  hours  within  any  twenty-four  hours,  and 
the  hours  of  employment  in  such  employment  or  work  day 
shall  be  consecutive,  excluding,  however,  any  intermission 
of  time  for  lunch  or  meals ;  provided  that,  in  the  case  of 
emergency  where  life  or  property  is  in  imminent  danger,  the 
period  may  be  a  longer  time  during  the  continuance  of  the 
exigency  or  emergency. 

Act  of  the  Legislature,  approved  March  10,  1909. 

(c) — Abandoned  Oil  Wells. — Abandoned  oil  wells  must  be 
filled  by  the  owner,  with  clay,  earth  or  cement  mortar,  thor- 
oughly packed  and  tamped,  to  a  point  above  the  upper  oil- 
bearing  strata.  While  withdrawing  the  casing,  water  must 
be  effectually  and  permanently  excluded. 

Act  of  the  Legislature,  approved  March  20,  1909. 


PART  VIII 

WATER  AND  WATER  RIGHTS 

Section  1064.— APPROPRIATION  OF  WATER.— The 

right  to  the  use  of  running  water,  flowing  in  a  river  or 
stream,  or  down  a  canyon  or  ravine,  may  be  acquired  in 
California  by  appropriation.  Appropriation  must  be  for 
some  useful  or  beneficial  purpose,  and  when  the  appropria- 
tor  or  his  successor  in  interest  ceases  to  use  it  for  such 
purposes,  the  right  ceases. 

Civil  Code,  Section  1410,  1411.  .^ 

Section    1065.— NOTICE    OF   APPROPRIATION.— A 

person  desiring  to  appropriate  water  must  post  a  notice,  in 
writing,  in  a  conspicuous  place  at  the  point  on  the  stream 
where  he  intends  to  take  the  water  from  it.  This  notice 
must  state  (1)  that  he  claims  the  water  there  flowing  to 
the  extent  of  (giving  the  number)  inches,  measured  under 
a  four-inch  pressure;  (2)  the  purpose  for  which  he  claims 
it,  and  the  place  of  intended  use;  (3)  the  means  by  which 
he  intends  to  divert  it ;  (4)  and  the  size  of  the  flume,  pipe, 
or  aqueduct  in  which  he  intends  to  divert  it  from  the  stream. 
Statutes  of  1903,  page  361. 

Section  1066.— NOTICE  MUST  BE  RECORDED.— A 

copy  of  the  notice  of  appropriation  must  be  recorded,  within 
ten  days  after  it  is  posted,  in  the  office  of  the  Recorder  of 
the  county  in  which  it  is  posted. 

Statutes  of  1903,  page  361. 

Section  1067.— CHANGE  OF  PLACE  OF  INTENDED 
DIVERSION.— The  law  passed  in  1903,  above  stated,  pro- 
vides that  after  filing  the  notice  of  appropriation  for  rec- 
ord,   "the    place   of   intended    diversion,    or    the    place    of 

(623) 


624  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

intended  use,  or  the  means  by  which  it  is  intended  to  divert 
the  water,  may  be  changed  by  the  person  posting  said 
notice,  or  his  assigns,  if  others  are  not  injured  by  such 
change."  But  the  law  does  not  state  in  what  manner  the 
change  shall  be  made,  whether  by  posting  and  recording 
a  new  notice,  or  in  some  other  way  indicating  the  intention 
to  change  the  place  of  diversion,  the  place  of  intended  use, 
or  the  means  of  taking  the  water.  The  law  being  uncertain 
in  this  particular,  it  would  be  well  to  file  a  new  notice  for 
record  stating  the  change. 

Statutes  of  1903,  page  361. 

Section  1068.— FORM  OF  NOTICE  OF  APPROPRIA- 
TION.— The  following  is  a  form  of  notice  of  appropriation, 
to  be  posted  and  recorded  as  stated  in  preceding  Sections. 
The  notice  should  be  posted  at  the  outlet  or  point  of  diver- 
sion on  the  bank  of  the  stream : — 

Notice  of  Claim  of  Water. 

The  undersigned' claims  the  water  running  in  this  stream 

to  the  extent  of (state  number  of  inches) 

inches,  measured  under  a  four-inch  pressure. 

I  claim  the  water  for 

(Here  state  purpose  for  which  water  is  to  be  used.) 

and  I  intend  to  use  it  at 

(Here  state  place  where  water  is  to  be  used.) 

I  intend  to  divert  the  water  by  means  of 

(Here  state  whether  it  is  intended  to  use  a  flume,  pipe,  ditch, 

or  aqueduct.) 

The  size  of  the  flume  (or  ditch,  or  aqueduct,  as  the  case 
may  be)  in  which  I  intend  to  divert  said  water  will  be 
(here  state  size.) 

Claimant. 
Notice  posted 19. . . 


WATER  AND  WATER  RIGHTS.  625 

Section  1069.— WHEN  WORK  MUST  BE  COM- 
MENCED.— The  Legislature  of  1907  passed  an  act  regu- 
lating the  commencement  of  work,  which  reads  as  follows : 
"Within  sixty  days  after  the  notice  is  posted,  the  claimant 
must  commence  the  excavation  or  constructioi;  of  the  works 
in  which  he  intends  to  divert  the  water,  or  the  survey,  road 
or  trail  building,  necessarily  incident  thereto,  and  must 
prosecute  the  work  diligently  and  uninterruptedly  to  com- 
pletion, unless  temporarily  interrupted  by  snows  or  rain; 
provided,  that  the  erection  of  a  dam  has  been  recommended 
by  the  California  debris  commission  at  or  near  the  place 
where  it  is  intended  to  divert  the  water;  and,  provided 
further,  that  if  it  shall  be  necessary,  by  proceedings  in  emi- 
nent domain,  to  acquire  water  rights  held  by  adverse 
riparian  owners  or  to  acquire  sites  for  dams  or  power 
plants  at  the  point  of  intended  diversion  or  the  point  of 
intended  use,  as  described  in  the  notice  of  appropriation 
of  said  water,  or  if  there  shall  be  conflicting  claims  to  the 
waters  so  appropriated,  then  the  party  so  appropriating, 
or  his  assigns,  shall  have  sixty  days  after  the  determination 
of  legal  proceedings  by  final  judgment  in  which  to  com- 
mence to  excavate  or  construct  the  works  in  which  he 
intends  to  divert  the  water  as  provided  in  this  section ;  and 
provided  further,  that  if  suits  for  such  purpose  are  not 
already  pending  at  the  date  of  the  passage  of  this  Act,  they 
shall  be  commenced  within  sixty  days  after  this  Act  takes 
effect,  and  as  to  future  appropriations  of  water,  within 
sixty  days  after  notice  of  such  appropriation  is  posted  as 
required  by  law,  and  such  proceedings  shall  be  prosecuted 
diligently  to  final  judgment;  but  nothing  in  this  Act  shall 
be  construed  to  revive  or  renew  appropriations  of  water 
heretofore  made  which  have  been  abandoned  and  lost,  as 
against  subsequent  claimants  who  have  complied  with  this 
Act. 

Act  of  the  Legislature,  in  effect  May  21,  1907. 


626  BUSINESS   LAWS  FOR    BUSINESS   MEN. 

Section  1070.— FORFEITURE  OF  CLAIM.— A  failure 
to  comply  with  the  law,  as  to  notices,  commencement  of 
work,  or  completion  of  the  work  by  diligently  prosecuting 
it,  will  forfeit  the  right  of  the  claimant  to  the  use  of  the 
water,  as  against  a  subsequent  claimant  who  does  comply 
with  the  law. 

Civil  Code,  Section  1419. 

Section  1071.— RIPARIAN  RIGHTS.— The  owner  of 
land  upon  a  stream  has  a  right  to  the  use  of  water,  which 
is  called  a  riparian  right.  He  is  entitled,  without  making 
an  appropriation  under  the  law,  to  have  the  use  of  water 
flowing  by  his  land  for  any  purpose  to  which  it  can  be 
applied  beneficially — for  supplying  his  natural  wants,  in- 
cluding the  use  of  the  water  for  the  domestic  purposes  of 
his  home  or  farm,  such  as  drinking,  washing,  or  cooking, 
and  for  his  stock.  This  is  what  is  called  a  riparian  right, 
and  the  owner  of  land  upon  both  navigable  and  unnavi- 
gable  streams  is  called  a  riparian  proprietor.  As  such,  he 
is  entitled  to  have  the  stream  which  washes  his  land  flow 
in  its  natural  channel,  without  diminution  or  alteration.  It 
may  be  subject  to  condemnation  for  public  use,  but  it  can- 
not be  condemned  for  public  use  without  full  compensation 
being  made  to  the  riparian  proprietor  for  its  loss.  And 
he  may  insist  that  the  stream  shall  flow  to  his  land  in  the 
usual  quantity,  at  its  natural  place  and  height,  and  that  it 
shall  flow  off  his  land  to  his  neighbor  below  in  its  accus- 
tomed channel  and  at  its  usual  level.  His  right  to  the 
use  of  the  water  is  not  a  mere  easement,  but  is  inseparably 
annexed  to  the  soil  itself.  It  does  not  in  any  way  depend 
upon  appropriation,  but  is  a  part  of  the  land,  and  goes 
with  the  land  from  owner  to  owner,  as  conveyances  may 
be  made.  He  may  take  the  water  from  its  natural  chan- 
nel, and  carry  it  on  to  other  parts  of  his  land,  provided  he 
turns  it  back  into  the  channel  again  to  his  neighbor  below. 
However,  his  use  of  the  water  must  be  reasonable,  so  as 
to  let  it  flow  on  when  he  is  through  with  it,  so  that  others 


WATER  AND  WATER  RIGHTS.  627 

may  also  have  the  benefit  of  their  riparian  right  in  the  use 
of  the  water,  for  the  natural  wants  of  other  proprietors. 
He  must  see  to  it  that  the  surplus,  after  he  uses  the  water, 
is  returned  to  the  stream,  for  the  use  of  those  below.  He 
is  never  allowed,  as  against  a  lower  proprietor,  to  use  all 
the  water  of  the  stream  on  his  own  land,  unless  such  use 
is  absolutely  necessary  for  strictly  domestic  purposes  and 
to  furnish  drink  for  man  and  beast. 

Section  1072.— PROTECTION  OF  RIPARIAN 
RIGHTS. — The  courts  of  California  will  protect  the  ripa- 
rian proprietor,  by  issuing  an  injunction  against  any  one 
who  interferes  with  his  proper  use  and  enjoyment  of  the 
water.  The  courts  will  also  allow  him  damages  for  injury 
to  his  premises,  against  any  one  who  deprives  him  of  his 
use  of  the  water. 

(a) — Manner  of  Using  Water. — One  making  an  appro- 
priation of  water  from  a  natural  stream  may  make  use  of 
any  natural  or  artificial  channel  available  and  convenient 
for  the  purpose  of  conducting  the  water,  so  long  as  other 
persons  interested  in  such  conduit  do  not  object,  and  his 
appropriation  so  made  will  be  as  eflFectual  as  if  he  had  car- 
ried it  through  a  ditch  or  pipe-line  made  for  that  purpose 
and  no  other.  A  person  making  an  appropriation  of  water 
from  a  natural  stream  need  not  construct  any  head-gate 
at  the  place  of  diversion,  and  if  a  simple  cut  will  accomplish 
the  purpose  of  diverting  the  water  from  the  stream,  it  is, 
if  accompanied  with  a  beneficial  use,  a  good  appropriation 
as  against  others  making  a  subsequent  diversion  and  use. 
(Decided  by  the  Supreme  Court  of  California  in  the  case 
of  Lower  Tule  Ditch  Co.  vs.  Angiolo  Water  Co.,  which  de- 
cision is  printed  in  Volume  86  of  the  Pacific  Reporter,  page 
1081.) 

Section  1073.— WATER  RIGHTS  ON  PUBLIC  LAND. 

— From  the  earliest  times  in  California  it  has  been  cus- 
tomary to  divert  water  on  the  public   lands   for  mining, 


628  BUSINESS  LAWS  FOR  BUSINESS   MEN, 

agricultural,  and  other  purposes,  and  this  right  was,  in 
1866,  confirmed  and  approved  by  Act  of  Congress.  There- 
fore, the  occupant  of  public  land  who  is  living  on  it  in 
good  faith  has  the  right,  whether  the  land  is  surveyed  or 
unsurveyed,  to  appropriate  water  flowing  in  a  stream,  can- 
yon, or  ravine,  and  take  it  to  his  land  for  agricultural, 
mining,  or  domestic  purposes.  It  will  make  no  difference 
whether  he  has  or  has  not  obtained  a  legal  title  to  the  land 
he  occupies.  If  he  is  an  occupant  of  the  land,  claiming 
under  the  laws  of  the  United  States,  this  will  be  sufficient 
to  entitle  him  to  appropriate  water  for  use  on  the  land. 
(Decided  by  the  Supreme  Court  of  California  in  the  case 
of  Ely  vs.  Ferguson,  which  decision  is  printed  in  Volume 
91  of  the  California  Reports,  page  187.) 

Section  1074.— OBTAINING  TITLE  BY  PRESCRIP- 
TION.— A  right  to  the  use  of  water  may  be  obtained  by 
prescription.  That  is,  one  who  has  been  continuously 
using  water,  conveyed  in  a  ditch,  flume,  or  aqueduct,  for 
five  years,  claiming  the  right  as  against  the  world,. obtains 
a  title  to  the  water  by  reason  of  such  possession  adverse 
to  others.  A  party  may  obtain  a  prescriptive  title  to  the 
water  of  a  stream  by  using  it  on  vacant  government  land; 
if  a  lawful  use  of  the  water  is  made,  it  makes  no  difference 
who  is  the  owner  of  the  land  upon  which  it  is  used.  (De- 
cided by  the  Supreme  Court  of  California  in  the  case  of 
Southern  California  Investment  Company  vs.  George  Wil- 
shire,  which  decision  is  printed  in  Volume  28,  California 
Decisions,  page  80.) 

Section    1075.— WATER   FOR   IRRIGATION.— Under 

the  law  of  riparian  rights,  the  riparian  proprietor  has  the 
right  to  use  a  reasonable  amount  of  the  water  of  a  stream 
running  through  his  premises  for  irrigating  his  riparian 
land,  but  he  has  not  the  right  for  that  purpose  to  take  all 
the  water  which  flows  in  the  stream  at  the  point  where  he 


WATER  AND  WATER  RIGHTS.  629 

diverts  it.  What  is  a  reasonable  amount  of  water  for  irri- 
gation is  a  question  that  must  depend  upon  the  particular 
circumstances  of  each  case  in  which  it  arises,  and  it  is  a 
question  which  is  frequently  of  ciifficult  solution ;  but  it  is 
settled  in  California  that  in  no  case  can  a  riparian  propri- 
etor, for  the  purpose  of  irrigation,  use  all  the  water  of  the 
stream,  and  thus  leave  a  lower  proprietor  without  any. 
And  while  he  may  use  a  part  of  the  water  of  the  stream 
to  irrigate  his  land,  the  land  irrigated  must  be  riparian; 
that  is,  the  land  irrigated  must  be  the  land  through  which 
the  stream  flows.  He  cannot  take  the  water  away  to  other 
land,  although  owned  by  him.  He  is  restricted  in  the  use 
of  the  water  for  irrigation  to  the  land  through  which  the 
stream  flows.  (Decided  by  the  Supreme  Court  of  Califor- 
nia in  the  case  of  Gould  vs.  Stafford,  which  decision  is 
printed  in  Volume  91  of  the  California  Reports,  page  146.) 


Section  1076.— IRRIGATION  DISTRICTS.— So  urgent 
has  been  the  need  of  water  for  irrigation  in  California,  so 
vast  the  interests  involved,  the  Legislature  of  the  State  has 
endeavored,  from  1889  to  1909  particularly,  to  create  a  sys- 
tem of  irrigation  districts  and  a  method  of  using  the  water 
for  irrigation.  The  laws  enacted  have  provided  for  the 
issuance  and  sale  of  bonds,  and  the  expenditure  of  immense 
sums  of  money.  But  the  practical  working  of  all  these 
laws  has  been  attended  by  so  many  conflicting  and  intri- 
cate questions,  the  validity  of  bonds  has  been  attacked  so 
many  times,  and  so  much  litigation  has  followed,  that  a 
statement  of  the  law  of  California,  as  applied  to  irrigation 
districts,  cannot  be  attempted  in  this  book.  For  the  law 
cannot  be  said  to  be  definitely  settled  yet,  as  to  rights, 
powers,  or  properties  of  irrigation  districts,  or  as  to  the 
rights  and  privileges  of  individuals  in  relation  to  them. 
The  various  Acts  of  the  Legislature  of  California  on  irri- 
gation districts  may  be  found  in  the  "General  Laws  of 
California,"  page  436,  and  in  Statutes  of  1909. 


630  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

Section  1077.— WATER  FOR  MINING.— The  Statutes 
of  the  United  States  provide :  "That  whenever,  by  priority 
of  possession,  rights  to  the  use  of  water  for  mining  have 
accrued,  and  the  same  are  recognized  and  acknowledged 
by  the  local  customs,  laws,  and  decisions  of  courts,  the 
possessors  and  owners  of  such  vested  rights  are  pro- 
tected in  the  same,  and  the  right  of  way  for  the  construc- 
tion of  ditches  and  canals,  they  are  hereby  acknowledged 
and  confirmed." 

Revised  Statutes  of  the  United  States,  Section  2339. 

(a) — The  California  Statute. — In  California,  the  Legis- 
lature has  provided  by  law  that  the  owner  of  a  mine  is 
entitled  to  a  right  of  way  through  or  over  other  mines,, 
for  ditches,  canals,  or  tunnels  used  in  the  working  of  his 
mine.  He  may  therefore  bring  water  to  his  mine  in  a  ditch 
or  flume  over  another  mining  claim,  or,  if  necessary,  in  a 
tunnel  through  another  mine.  Of  course,  if  by  construct- 
ing a  ditch,  flume,  or  tunnel,  to  carry  water  to  a  mining 
claim,  damage  is  done  to  other  property  over  or  through 
which  it  passes,  the  owner  of  the  damaged  property  must 
be  recompensed  for  his  loss. 

Statutes  of  1891,  page  220. 

(b) — First    Appropriator    Has    First    Right. — The    law 

about  riparian  rights  does  not  apply  to  mining.  For  min- 
ing purposes,  the  first  appropriator  has  first  right.  An 
appropriation  of  water  for  mining  purposes  is  made  in  the 
same  manner  as  an  appropriation  of  water  for  other  pur- 
poses, which  has  already  been  stated. 

(c) — Miner's  Inch  of  Water. — The  standard  miner's  inch 
of  water,  in  California,  is  fixed  by  law  as  equivalent  or 
equal  to  one  and  one-half  cubic  feet  of  water  per  minute 
measured  through  any  aperture  or  orifice. 
Statutes  of  1901,  page  660. 


WATER  AND  WATER  RIGHTS.  631 

Section  1078.— SUBTERRANEAN  WATERS— THE 
CASE  OF  KATZ  VS.  WALKINSHAW.— A  novel  and  in- 
teresting question,  involving  immense  individual  and 
corporation  investments,  has  been  before  the  Supreme 
Court  of  California,  and  received  a  final  determination.  It 
relates  to  subterranean  waters,  whether  flowing  in  under- 
ground channels,  or  percolating  through  the  earth  and  col- 
lecting in  a  given  spot.  The  dispute  occurred  in  San  Ber- 
nardino County,  and  the  case  of  Katz  vs.  Walkinshaw  has 
become  celebrated  in  this  State,  deciding,  as  it  does, 
that  the  right  of  a  land-owner  to  take  and  use  subterranean, 
percolating  waters,  and  divert  the  same  from  land  of  an  ad- 
joining owner,  is  limited  to  a  reasonable  use  in  connection 
with  the  use  of  his  own  land,  and  does  not  authorize  him 
to  appropriate  such  waters  by  artesian  wells  and  sell  the 
water  for  the  irrigation  of  distant  lands,  to  the  detriment 
of  adjoining  land-owners.  The  case  has  been  in  the  Su- 
preme Court  twice,  the  first  decision  being  written  by  Judge 
Temple  and  the  last  by  Judge  Shaw.  The  Superior  Court 
of  San  Bernardino  County  decided  the  case  in  favor  of  the 
defendant,  who  had  sunk  a  well  on  his  land,  and  thereby 
drew  ofif  the  water  from  the  well  of  his  neighbor;  but  the 
Supreme  Court  reversed  this  decision  and  decided  the  case 
in  favor  of  the  plaintifT.  The  following  extracts  from  the 
opinion  prepared  by  Judge  Temple  in  the  Supreme  Court 
will  give  the  interesting  and  very  important  points  in- 
volved : — 

"The  action  was  brought  to  enjoin  defendant  from  draw- 
ing off  and  diverting  water  from  an  artesian  belt,  which  is 
in  part  on  or  under  the  premises  of  plaintiffs,  and  to  the 
water  of  which  they  have  sunk  wells,  thereby  causing  the 
water  to  rise  and  flow  upon  the  premises  of  plaintiffs  and 
which  had  constantly  so  flowed  for  twenty  years  before  the 
wrong  complained  of  was  committed  by  defendant.  The 
water  is  necessary  for  domestic  purposes  and  for  irrigating 
the  lands  of  plaintiffs,  upon  which  there  are  growing  trees, 


632  BUSINESS   LAWS   FOR    BUSINESS   MEN. 

vines,  shrubbery,  and  other  plants,  which  are  of  great  value 
to  plaintiffs. 

"These  facts  are  admitted,  and  further  that  defendant  is 
diverting  the  water  for  sale,  to  be  used  on  lands  of  others 
distant  from  the  saturated  belt  from  which  the  artesian 
water  is  derived. 

"The  plaintiffs  contend  that  this  subsurface  water  consti- 
tutes an  underground  stream,  and  that  plaintiffs  are  riparian 
thereto,  and  as  such  riparian  owners  they  are  seeking  relief 
in  this  case. 

"The  defendant  denies  that  she  is  taking  or  diverting 
water  from  an  underground  stream  or  water-course,  and 
alleges  that  all  the  water  which  arises,  in  the  artesian  wells 
on  her  premises,  and  which  she  is  selling,  is  percolating 
water,  and  is  parcel  of  her  premises,  and  her  property. 

"In  effect,  therefore,  while  denying  that  she  is  doing  any 
act  of  which  plaintiffs  can  complain,  she  really  only  denies 
that  she  is  diverting  water  from  an  underground  water- 
course, and  asserts  her  right  to  dispose  of  the  water  in  the 
manner  alleged,  because  it  is  percolating  water,  not  confined 
to  a  definite  water-course. 

"The  so-called  artesian  belt  includes  several  square  miles 
of  territory.  It  is  a  large  accumulation  of  earth  upon  the 
base  of  very  high  mountains,  and  is  composed  of  detritus 
of  varying  quantity  and  material,  with  no  regular  stratifica- 
tion. Wells  have  been  sunk  at  least  to  the  depth  of  750 
feet,  but  no  bed-rock  has  been  found.  It  has  quite  an  in- 
cline from  the  mountain,  and  is  from  700  to  1,500  feet  above 
sea  level.  Mr.  F.  C.  Finkle,  a  civil  engineer,  was  the  chief 
witness  for  the  plaintiffs,  and  testified  both  as  to  facts  pal- 
pable to  the  senses,  and  as  an  expert.  He  says,  the  satu- 
rated land  is  fed :  First,  by  the  underflow  from  the  numer- 
ous ravines,  canyons,  and  streams  which  enter  the  valley 
from  the  mountains ;  and,  secondly,  by  the  rain  and  flood- 
water  upon  and  absorbed  upon  the  slope  and  between  the 
artesian  belt  and  the  mountains.  This  water  percolating 
down  into  the  soil,  and  constantly  pressed  forward  by  water 


WATER  AND  WATER  RIGHTS.  633 

accumulating,  finally  gets  under  partially  impervious  earth, 
where  it  is  held  under  sufficient  pressure  to  create  the  arte- 
sian belt.  The  banks  of  this  supposed  sub-surface  stream, 
the  witness  thought,  were  on  the  west,  'a  cemented  dyke 
which  runs  throughout  the  valley,  and  the  eastern  boundary 
of  it  is  the  clay  bank  or  dyke  at  the  south  side  of  the  Santa 
Ana  River.'  Within  these  limits  many  ravines  enter  from 
the  mountains,  some  of  them  carrying  at  times  great  quan- 
tities of  water,  much  of  which  had  been  appropriated  and 
carried  off  in  pipes  or  cemented  aqueducts. 

"It  is  evident  that  if  there  is  any  flow  to  this  underground 
body  of  water  thus  held  under  pressure,  it  is  by  percolation. 
The  witness  stated  that  the  process  was  the  same  the  world 
over.  The  lower  lands  are  saturated  from  above.  'It  is 
done  by  saturation  from  the  rainfalls  and  the  floods,  and 
percolation  through  voids  in  the  soil.' 

"It  is  quite  manifest  that  this  body  (if  it  can  be  so  styled) 
of  percolating  water  cannot  be  called  an  underground  water- 
course to  which  riparian  rights  can  attach,  unless  we  are 
prepared  to  abolish  all  distinction  between  percolating 
water  and  the  water  flowing  in  streams  with  known  or 
ascertainable  banks,  which  confine  the  water  to  definite 
channels.  All  rain  water  which  falls  upon  the  hills  and 
mountain  sides  which  does  not  flow  off  at  once,  as  surface 
water,  is  absorbed  and  percolates  down  in  the  same  way 
to  the  valley  below.  No  doubt  limits  can  be  found  to  every 
such  flow,  as  in  this  case.  The  distinction  is  well  estab- 
lished and,  in  some  respects,  different  rules  of  law  applied 
to  the  two  cases.  The  plaintiffs  therefore  cannot  establish 
their  claims  upon  the  theory  of  an  underground  water- 
course to  which  they  are  riparian. 

"But  the  appellants  contend  that,  though  they  are  not 
riparian  to  an  underground  water-course,  and  although  the 
saturated  belt  carries  only  percolating  water,  still  they  are 
entitled  to  the  injunction  prayed  for. 

"It  is  obvious,  at  once,  that  the  analogy  between  the  right 
to  remove  sand  and  gravel  from  the  land  for  sale,  and  to 


634  BUSINESS   LAWS   FOR   BUSINESS   MEN. 

remove  and  sell  percolating  water  is  not  perfect.  If  we 
suppose  a  saturated  plain,  one  may  remove  and  sell  the  sand 
and  gravel  from  his  land  without  affecting  or  diminishing 
the  sand  and  gravel  on  the  lands  of  his  neighbors.  If  the 
water  on  his  lands  is  his  property,  then  the  water  in  the 
soil  of  his  neighbors  is  their  property.  But  when  he  drains 
out  and  sells  the  water  on  his  land,  he  draws  to  his  land  and 
also  sells  water  which  is  the  property  of  his  neighbor.  And 
the  effect  is  similar  in  other  respects.  By  pumping  out  the 
water  from  his  lands  he  can,  perhaps,  deprive  his  neighbors 
of  water  for  domestic  uses,  and,  in  fact,  render  their  land 
valueless.  In  short,  the  members  of  the  community,  in  the 
case  supposed,  have  a  common  interest  in  the  water.  It  is 
necessary  for  all,  and  it  is  an  anomaly  in  the  law  if  one  per- 
son can  for  his  individual  profit  destroy  the  community  and 
render  the  neighborhood  uninhabitable. 

"We  have  derived  our  law,  in  respect  to  subterranean 
waters,  as  in  other  respects,  mostly  from  England,  but  in 
regard  to  this  matter  the  first  cases  are  quite  modern.  Even 
yet  the  text-books  on  water  rights  have  but  little  to  say 
upon  the  subject  of  percolating  water.  Such  law  as  has 
been  made  upon  the  subject  comes  from  countries  and  cli- 
mates where  water  is  abundant,  and  its  conservation  and 
economical  use  of  little  consequence  as  compared  with  a 
climate  like  Southern  California.  The  learned  counsel  for 
appellants  state  in  their  brief,  that  water  at  San  Bernardino 
is  worth  $1,000  per  inch  of  flow.  Percolating  water  or 
water  held  in  the  earth,  is  the  main  source  of  supply  for 
domestic  uses,  and  for  irrigation,  without  which  most  lands 
are  unproductive.  It  is  also  stated  that  speculators  are 
seeking  to  appropriate  the  percolating  water,  by  getting 
title  to  some  part  of  a  water  shed  or  slope,  and  by  running 
canals  and  tunnels,  and  by  sinking,  to  obtain  water  for  sale. 
It  is  asserted  that  the  lands  naturally  made  moist  by  per- 
colating water  are  very  productive,  and  were  first  settled 
upon,  and  have  been  most  highly  improved;  and  he  asks 
whether    these    lands    are    to    be    converted    into    deserts, 


WATER  AND  WATER  RIGHTS.  635 

because  speculators  may  pump  and  carry  away  to  some  dis- 
tant locality  the  sub-surface  waters  which  render  the  land 
fertile.  Certainly  no  such  case  as  this  has  come  before  a 
court,  or  could  well  exist,  in  England,  or  in  the  Eastern 
States. 

"No  doubt  the  land  proprietor  owns  the  water  which  is 
parcel  of  his  land,  and  may  use  it  as  he  pleases,  regard  being 
had  to  the  rights  of  others.  It  is  not  unreasonable  that  he 
should  dig  wells  in  order  to  have  the  fullest  enjoyment  and 
usefulness  of  his  estate,  or  for  pleasure,  trade,  or  whatever 
else  the  land  as  land  may  serve.  But  to  fit  it  up  with  wells 
and  pumps  of  such  persuasive  and  potential  reach  that  from 
their  base  the  defendant  can  tap  the  water  stored  in  the 
plaintiff's  land,  and  in  all  the  region  thereabout,  and  lead 
it  to  his  own  land,  and  by  merchandising  it  prevent  its  re- 
turn, is,  however  reasonable  it  may  appear  to  the  defendant 
and  its  customers,  unreasonable  as  to  the  plaintiff,  and  oth- 
ers whose  lands  are  thus  clandestinely  sapped,  and  their 
value  impaired." 

A  rehearing  was  granted  by  the  Supreme  Court,  and  on 
November  28th,  1903,  another  and  final  decision  was  made 
by  the  full  court,  and  the  former  opinion  given  by  Judge 
Temple  was  approved  and  sustained  in  every  particular. 
Upon  the  final  determination  of  the  suit.  Judge  Shaw  pre- 
pared the  opinion.  It  is  extremely  interesting  and  valu- 
able. Following  are  extracts  showing  the  principal  points 
in  Judge  Shaw's  opinion  : — 

"A  rehearing  was  granted  in  this  case  for  the  purpose  of 
considering  more  fully,  and  by  the  aid  of  such  additional 
arguments  as  might  be  presented  by  persons  not  parties  to 
the  action,  but  vitally  interested  in  the  principle  involved, 
a  question  that  is  novel  and  of  the  utmost  importance  to 
the  application  to  useful  purposes  of  the  waters  which  may 
be  found  in  the  soil. 

"Petitions  for  rehearing  were  presented  not  only  in  behalf 
of  the  defendant,  but  also  on  behalf  of  a  number  of  corpora- 
tions engaged  in  the  business  of  obtaining  water  from  wells 


636  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

and  distributing  the  same  for  public  and  private  use  within 
this  State,  and  particularly  in  the  southern  part  thereof. 
Able  and  exhaustive  briefs  have  been  filed  on  the  rehear- 
ing. The  principle  decided  by  the  late  Justice  Temple  in 
the  former  opinion,  and  the  course  of  reasoning  by  which 
he  arrived  at  the  conclusion,  have  been  attacked  in  these 
several  briefs  and  petitions  with  much  learning  and  acumen. 
It  is  proper  that  we  should  here  notice  some  of  the  objec- 
tions thus  presented. 

"Many  arguments,  objections,  and  criticisms  are  pre- 
sented in  opposition  to  the  rules  and  reasoning  of  the  for- 
mer opinion.  It  is  contended  that  the  rule  that  each  land- 
owner owns  absolutely  the  percolating  waters  in  his  land, 
with  the  right  to  extract,  sell,  and  dispose  of  them  as  he 
chooses,  regardless  of  the  results  to  his  neighbor,  is  part 
of  the  common  law,  and  as  such  has  been  adopted  in  this 
State. 

"The  true  doctrine  is  that  the  common  law  by  its  own 
principles  adapts  itself  to  varying  conditions,  and  modifies 
its  own  rules  so  as  to  serve  the  ends  of  justice  under  the 
different  circumstances,  a  principle  adopted  into  our  code 
by  Section  3510,  Civil  Code:  'When  the  reason  of  a  rule 
ceases,  so  should  the  rule  itself.'  Whenever  it  is  found 
that,  owing  to  the  physical  features  and  character  of  this 
State,  and  the  peculiarities  of  its  climate,  soil,  and  produc- 
tions, the  application  of  a  given  common  law  rule  by  our 
courts  tends  constantly  to  cause  injustice  and  wrong,  rather 
than  the  administration  of  justice  and  right,  then  the  funda- 
mental principles  of  right  and  justice  on  which  that  law  is 
founded,  and  which  its  administration  is  intended  to  pro- 
mote, requires  that  a  different  rule  should  be  adopted,  one 
which  is  calculated  to  secure  persons  in  their  property  and 
possessions,  and  to  preserve  for  them  the  fruits  of  their 
labors  and  expenditures.  The  question  whether  or  not  the 
rule  contended  for  is  a  part  of  the  common  law  applicable 
to  this  State,  depends  on  whether  it  is  suitable  to  our  con- 
ditions under  the  rule  just  stated. 


WATER  AND  WATER  RIGHTS.  637 

"It  is  necessary,  therefore,  to  state  the  conditions  exist- 
ing in  many  parts  of  this  State  which  are  different  from 
those  existing  where  the  rule  had  its  origin. 

"In  a  large  part  of  the  State,  and  in  almost  all  of  the 
southern  half  of  it,  particularly  south  of  the  Tehachapi 
range  of  mountains,  aside  from  grains,  grasses,  and  some 
scant  pasturage,  there  is  practically  no  production  by  agri- 
culture, except  by  means  of  artificial  irrigation.  In  a  few 
places  favored  by  nature,  crops  are  nourished  by  natural 
irrigation,  due  to  the  existence  underneath  the  ordinary 
soil  of  a  saturated  layer  of  sand  or  gravel,  but  these  places 
are  so  few  that  they  are  of  no  consequence  in  any  general 
view  of  the  situation.  Irrigation  in  these  regions  has  al- 
ways been  customary,  and  under  the  Spanish  and  Mexican 
governments  it  was  fostered  and  encouraged.  Even  in 
the  earlier  periods  of  the  settlement  of  the  country,  after 
its  acquisition  by  the  United  States,  and  while  the  popula- 
tion was  sparse  and  scattered  compared  to  the  present  time, 
the  natural  supply  of  water  from  the  surface  streams,  as 
diverted  and  applied  by  the  crude  and  wasteful  methods 
then  used,  was  not  considered  more  than  was  necessary. 
As  the  population  increased,  better  methods  of  diversion, 
distribution,  and  application  were  adopted,  and  the  streams 
were  made  to  irrigate  a  very  much  larger  area  of  land. 
While  this  process  was  going  on,  a  series  of  wet  years 
augmented  the  streams,  and  still  more  land  was  put  under 
the  irrigating  systems.  Recently  there  has  followed  an- 
other series  of  very  dry  years,  which  has  correspondingly 
diminished  the  flow  of  the  streams.  After  this  period  be- 
gan, it  was  soon  found  that  the  natural  streams  were  insuf- 
ficient. The  situation  became  critical,  and  heavy  loss  and 
destruction  from  drouth  were  imminent.  Still  the  popu- 
lation continued  to  increase,  and  with  it  the  demand  for 
more  water  to  irrigate  more  land.  Recourse  was  then  had 
to  the  underground  waters.  Tunnels  were  constructed, 
more  artesian  wells  bored,  and  finally  pumps  driven  by 
electric  or  steam  power  were  put  into  general  use  to  obtain 


638  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

sufficient  water  to  keep  alive  and  productive  the  valuable 
orchards  planted  at  the  time  when  water  was  supposed  to 
be  more  abundant.  The  geological  history  and  formation 
of  the  country  is  peculiar.  Deep  borings  have  shown  that 
almost  all  of  the  valleys  and  other  places  where  water  is 
found  abundantly  in  percolation  were  formerly  deep  can- 
yons or  basins,  at  the  bottoms  of  which  anciently  there  were 
surface  streams  or  lakes.  Gravel,  boulders,  and,  occasion- 
ally, pieces  of  driftwood  have  been  found  near  the  coast 
far  below  tide  level,  showing  that  these  sunken  stream-beds 
were  once  high  enough  to  discharge  water  by  gravity  into 
the  sea.  These  valleys  and  basins  are  bordered  by  high 
mountains,  upon  which  there  falls  the  more  abundant  rain. 
The  deep  canyons  or  basins  in  course  of  ages  have  become 
filled  with  the  washings  from  the  mountains,  largely  com- 
posed of  sand  and  gravel,  and  into  this  porous  material  the 
water  now  running  down  from  the  mountains  rapidly  sinks 
and  slowly  moves  through  the  lands  by  the  process  usually 
termed  percolation,  forming  what  are  practically  under- 
ground reservoirs.  It  is  the  water  thus  held  or  stored  that 
is  now  being  taken  to  eke  out  the  supply  from  the  natural 
streams.  In  almost  every  instance  of  a  water  supply  from 
the  so-called  percolating  water,  the  location  of  the  well  or 
tunnel  by  which  it  is  collected  is  in  one  of  these  ancient 
canyons  or  lake  basins.  Outside  of  these,  there  is  no  per- 
colating water  in  sufficient  quantity  to  be  of  much  impor- 
tance in  the  development  of  the  country,  or  of  sufficient 
value  to  cause  serious  litigation.  It  is  usual  to  speak  of  the 
extraction  of  this  water  from  the  ground  as  a  development 
of  a  hitherto  unused  supply.  But  it  is  not  yet  demon- 
strated that  the  process  is  not  in  fact,  for  the  most  part, 
an  exhaustion  of  the  underground  sources  from  which  the 
surface  streams  and  other  supplies  previously  used  have 
been  fed  and  supported.  In  some  cases  this  has  been 
proven  by  the  event.  The  danger  of  exhaustion  in  this 
way  threatens  surface  streams  as  well  as  underground  per- 
colations     and      reservoirs.        Many      water      companies. 


WATER  AND  WATER  RIGHTS.  639 

anticipating  such  an  attack  on  their  water  supply,  have  felt 
compelled  to  purchase,  and  have  purchased,  at  great  expense, 
the  lands  immediately  surrounding  the  stream  or  source 
of  supply,  in  order  to  be  able  to  protect  and  secure  the 
percolations  from  which  the  source  was  fed.  Owing  to 
the  uncertainty  in  the  law,  and  the  absence  of  legal  pro- 
tection, there  has  been  no  security  in  titles  to  water  rights. 
So  great  is  the  scarcity  of  water  under  the  present  demands 
and  conditions  that  one  who  is  deprived  of  water  which 
he  has  been  using  has  usually  no  other  source  at  hand  from 
which  he  can  obtain  another  supply. 

"The  water  thus  obtained  from  all  these  sources  is  now 
used  with  the  utmost  economy,  and  is  devoted  to  the  pro- 
duction of  citrus  and  other  extremely  valuable  orchard  and 
vineyard  crops.  The  water  itself,  owing  to  the  tremendous 
need,  the  valuable  results  from  its  application,  and  the 
constant  effort  to  plant  more  orchards  and  vineyards  to 
share  in  the  great  profits  realized  therefrom,  has  become 
very  valuable.  In  some  instances  it  has  been  known  to 
sell  at  the  rate  of  fifty  thousand  dollars  for  a  stream  flowing 
at  the  rate  of  one  cubic  foot  per  second.  Notwithstanding 
the  great  drain  on  the  water  supply,  the  economy  in  the 
distribution  and  application,  and  the  much  larger  area  of 
land  thereby  brought  under  irrigation,  there  still  remain 
large  areas  of  rich  soil  which  are  dry  and  waste  for  want 
of  water.  This  abundance  of  land,  with  the  scarcity  and 
high  price  of  water,  furnishes  a  constant  stimulus  to  the 
further  exhaustion  of  the  limited  amount  of  underground 
water,  and  a  constant  temptation  to  invade  sources  already 
appropriated.  The  charms  of  the  climate  have  drawn,  and 
will  continue  to  draw,  immigrants  from  the  better  classes 
of  the  Eastern  States,  composed  largely  of  men  of  experi- 
ence and  means,  energetic,  enterprising,  and  resourceful. 
With  an  increasing  population  of  this  character,  it  is  mani- 
fest that  nothing  that  is  possible  to  be  done  to  secure  suc- 
cess will  be  left  undone,  and  that  there  must  ensue  in  years 
to  come  a  fierce  strife,  first  to  acquire  and  then  to  hold 
every  available  supply  of  water. 


640  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

"It  is  scarcely  necessary  to  state  the  conditions  existing 
in  other  countries  referred  to,  to  show  that  they  are  vastly 
different  from  those  above  stated.  There  the  rainfall  is 
abundant,  and  water,  instead  of  being  of  almost  priceless 
value,  is  a  substance  that  in  many  instances  is  to  be  gotten 
rid  of  rather  than  preserved.  Drainage  is  there  an  impor- 
tant process  in  the  development  of  the  productive  capacity 
of  the  land,  and  irrigation  is  unknown.  The  lands  that 
from  their  situation  in  this  country  are  classed  as  damp 
lands  would  in  those  countries  be  either  covered  by  lakes 
or  would  be  swamps  and  bogs.  If  one  is  deprived  of  water 
in  those  regions,  there  is  usually  little  difficulty  in  obtain- 
ing a  sufficient  supply  nearby,  and  at  small  expense.  The 
country  is  interlaced  with  streams  of  all  sizes,  from  the 
smallest  brooklet  up  to  large,  navigable  rivers,  and  the  ques- 
tion of  the  water  supply  has  but  little  to  do  with  the  prog- 
ress or  prosperity  of  the  country. 

"It  is  clear  also  that  the  difficulties  arising  from  the  scar- 
city of  water  in  this  country  are  by  no  means  ended,  but,  on 
the  contrary,  are  probably  just  beginning.  The  application 
of  the  rule  contended  for  by  the  defendants  will  tend  to  ag- 
gravate these  difficulties  rather  than  solve  them.  Traced 
to  its  true  foundation,  the  rule  contended  for  is  simply  this : 
'that  owing  to  the  difficulties  the  courts  will  meet  in  secur- 
ing persons  from  the  infliction  of  great  wrong  and  injustice 
by  the  diversion  of  percolating  water  if  any  property  right 
in  such  water  is  recognized,  the  task  must  be  abandoned 
as  impossible,  and  those  who  have  valuable  property  ac- 
quired by  and  dependent  on  the  use  of  such  water  must  be 
left  to  their  own  resources  to  secure  protection  for  their 
property  from  the  attacks  of  their  more  powerful  neighbors, 
and,  failing  in  this,  must  suffer  irretrievable  loss ;  that  might 
is  the  only  protection. 


WATER  AND  WATER  RIGHTS.  641 

"  'The  good  old  rule 
Sufficeth  them,  the  simple  plan, 
That  they  should  take  who  have  the  power, 
And  they  should  keep  who  can.' 

"  'The  field  is  open  for  exploitation  to  every  man  who 
covets  the  possessions  of  another,  or  the  water  which  sus- 
tains and  preserves  them,  and  he  is  at  liberty  to  take  that 
water  if  he  has  the  means  to  do  so,  and  no  law  will  prevent 
or  interfere  with  him,  or  preserve  his  victim  from  the  at- 
tack.' THE  DIFFICULTIES  TO  BE  ENCOUNTERED 
MUST  BE  INSURMOUNTABLE  TO  JUSTIFY  THE 
ADOPTION  OR  CONTINUANCE  OF  A  RULE 
WHICH  BRINGS  ABOUT  SUCH  CONSEQUENCES. 

"We  do  not  see  how  the  doctrine  contended  for  by  de- 
fendant could  ever  become  a  rule  of  property  of  any  value. 
Its  distinctive  feature  is  the  proposition  that  no  property 
rights  exist  in  such  waters  except  while  they  remain  in  the 
soil  of  the  land-owner;  that  he  has  no  right  either  to  have 
them  continue  to  pass  into  his  land  as  they  would  under 
natural  conditions,  or  to  prevent  them  from  being  drawn 
out  of  his  land  by  an  interference  with  natural  conditions 
on  neighboring  land. 

"It  is  apparent  that  the  parties  who  have  asked  for  a 
reconsideration  of  this  case,  and  other  persons  of  the  same 
class,  if  the  rule  for  which  they  contend  is  the  law,  or  no- 
law,  of  the  land,  will  be  constantly  threatened  with  danger 
of  utter  destruction  of  the  valuable  enterprises  and  systems 
of  water  works  which  they  control,  and  that  all  new  enter- 
prises of  the  same  sort  will  be  subject  to  the  same  peril. 
They  will  have  absolutely  no  protection  in  law  against  oth- 
ers having  stronger  pumps,  deeper  wells,  or  a  more  favor- 
able situation,  who  can  thereby  take  from  them  unlimited 
quantities  of  the  water,  reaching  to  the  entire  supply,  and 
without  regard  to  the  place  of  use.  We  cannot  perceive 
how  a  doctrine  oflFering  so  little  protection  to  the  invest- 
ments in  and  product  of  such  enterprises,  and  offering  so 


642  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

much  temptation  to  others  to  capture  the  water  on  which 
they  depend,  can  tend  to  promote  developments  in  the 
future  or  preserve  those  already  made,  and,  therefore,  we 
do  not  believe  that  public  policy  or  a  regard  for  the  general 
welfare  demands  the  doctrine.  An  ordinary  difference  in 
the  conditions  would  scarcely  justify  the  refusal  to  adopt 
a  rule  of  the  common  law,  or  one  which  has  been  so  gen- 
erally supposed  to  exist;  but  where  the  differences  are  so 
radical  as  in  this  case,  and  would  tend  to  cause  so  great  a 
subversion  of  justice,  a  different  rule  is  imperative. 

"The  doctrine  of  reasonable  use,  on  the  other  hand,  af- 
fords some  measure  of  protection  to  property  now  existing, 
and  greater  justification  for  the  attempt  to  make  new  de- 
velopments. It  limits  the  right  of  others  to  such  amount 
of  water  as  may  be  necessary  for  some  useful  purpose  in 
connection  with  the  land  from  which  it  is  taken.  If,  as  is 
claimed  in  the  argument,  such  water-bearing  land  is  gen- 
erally worthless  except  for  the  water  which  it  contains,  then 
the  quantity  that  could  be  used  on  the  land  would  be  nom- 
inal, and  injunctions  could  not  be  obtained,  or  substantial 
damages  awarded,  against  those  who  carry  it  to  distant 
lands.  So  far  as  the  active  interference  of  others  is  con- 
cerned, therefore,  the  danger  to  such  undertakings  is  much 
less,  and  the  incentive  to  development  much  greater,  from 
the  doctrine  of  reasonable  use  than  from  the  contrary  rule. 
No  doubt  there  will  be  inconvenience  from  attacks  on  the 
title  to  waters  appropriated  for  use  on  distant  lands  made 
by  persons  who  claim  the  right  to  the  reasonable  use  of 
such  waters  on  their  own  lands.  Similar  difficulties  have 
arisen  and  now  exist  with  respect  to  rights  in  surface 
streams,  and  must  always  be  expected  to  attend  claims  to 
rights  in  a  substance  so  movable  as  water.  But  the  courts 
can  protect  this  particular  species  of  property  in  water  as 
effectually  as  water  rights  of  any  other  description. 

"It  may,  indeed,  become  necessary  to  make  new  appli- 
cations of  old  principles  to  the  new  conditions ;  and  in  view 
of    the    novelty    of    the    doctrine,    and    the    scope    of   the 


WATER  AND  WATER  RIGHTS.  643 

argument,  it  is  not  out  of  place  to  indicate  to  some  extent 
how  it  should  be  done,  although  otherwise  it  would  not  be 
necessary  to  the  decision  of  the  case.  The  controversies  aris- 
ing will  naturally  divide  into  classes. 

"There  will  be  disputes  between  persons  or  corporations 
claiming  rights  to  take  such  waters  from  the  same  strata  or 
source  for  use  on  distant  lands.  There  is  no  statute  on  this 
subject,  as  there  now  is  concerning  appropriations  of  sur- 
face streams,  but  the  case  is  not  without  precedent.  When 
the  pioneers  of  1849  reached  this  State,  they  found  no 
laws  in  force  governing  rights  to  take  waters  from  surface 
streams  for  use  on  non-riparian  lands.  Yet  it  was  found 
that  the  principles  of  the  common  law,  although  not  pre- 
viously applied  to  such  cases,  could  be  adapted  thereto,  and 
were  sufficient  to  define  and  protect  such  rights  under  the 
new  conditions.  The  same  condition  existed  with  respect 
to  rights  to  mine  on  public  land,  and  a  similar  solution 
was  found.  The  principles  which,  before  the  adoption  of 
the  Civil  Code,  were  applied  to  protect  appropriations  and 
possessory  rights  in  visible  streams  will,  in  general,  be 
found  applicable  to  such  appropriations  of  percolating 
waters,  either  for  public  or  private  use,  and  will  suffice  for 
their  protection  as  against  other  appropriators.  Such 
rights  are  usufructuary  only,  and  the  first  taker  who  with 
diligence  puts  the  water  in  use  will  have  the  better  right. 
And  in  ordinary  cases  of  this  character  the  law  of  pre- 
scriptive titles  and  rights  and  the  statute  of  limitations  will 
apply. 

"In  controversies  between  an  appropriator  for  use  on  dis- 
tant land  and  those  who  own  land  overlying  the  water- 
bearing strata,  there  may  be  two  classes  of  such  land- 
owners :  those  who  have  used  the  water  on  their  land  before 
the  attempt  to  appropriate,  and  those  who  have  not  pre- 
viously used  it,  but  who  claim  the  right  afterwards  to  do 
so.  Under  the  decision  in  this  case  the  rights  of  the  first 
class  of  land-owners  are  paramount  to  that  of  the  one  who 
takes  the  water  to  distant  land ;  but  the  land-owner's  right 


644  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

extends  only  to  the  quantity  of  water  that  is  necessary  for 
use  on  his  land,  and  the  appropriator  may  take  the  surplus. 
As  to  those  land-owners  who  begin  the  use  after  the  appro- 
priation, and  who,  in  order  to  obtain  the  water  must  re- 
strict, or  restrain,  the  diversion  to  distant  lands  or  places, 
it  is  perhaps  best  not  to  state  a  positive  rule.  Such  rights 
are  limited  at  most  to  the  quantity  necessary  for  use,  and 
the  disputes  will  not  be  so  serious  as  those  between  rival 
appropriators. 

"Disputes  between  overlying  land-owners,  concerning 
water  for  use  on  the  land,  to  which  they  have  an  equal 
right,  in  cases  where  the  supply  is  insufficient  for  all,  are 
to  be  settled  by  giving  to  each  a  fair  and  just  proportion. 
And  here  again  we  leave  for  future  settlement  the  question 
as  to  the  priority  of  rights  between  such  owners  who  begin 
the  use  of  the  waters  at  different  times.  The  parties  in- 
terested in  the  question  are  not  before  us. 

"In  addition  there  are  some  general  rules  to  be  applied. 
In  cases  involving  any  class  of  rights  in  such  waters,  pre- 
liminary injunctions  must  be  granted,  if  at  all,  only  upon 
the  clearest  showing  that  there  is  imminent  danger  of 
irreparable  and  substantial  injury,  and  that  the  diversion 
complained  of  is  the  real  cause.  Where  the  complainant 
has  stood  by  while  the  development  was  made  for  public 
use,  and  has  suffered  it  to  proceed  at  large  expense  to  suc- 
cessful operation,  having  reasonable  cause  to  believe  it 
would  affect  his  own  water  supply,  the  injunction  should 
be  refused  and  the  party  left  to  his  action  for  such  damages 
as  he  can  prove.  If  a  party  makes  no  use  of  the  water  on 
his  own  land,  or  elsewhere,  he  should  not  be  allowed  to 
enjoin  its  use  by  another  who  draws  it  out,  or  intercepts 
it,  or  to  whom  it  may  go  by  percolation,  although,  perhaps, 
he  may  have  the  right  to  a  decree  settling  his  right  to  use 
it  when  necessary  on  his  own  land,  if  a  proper  case  is  made. 

"The  objection  that  this  rule  of  correlative  rights  will 
throw  upon  the  court  a  duty  impossible  of  performance, 
that  of  apportioning  an  insufficient  supply  of  water  among 


WATER  AND  WATER  RIGHTS.  645 

a  large  number  of  users,  is  largely  conjectural.  No  doubt 
cases  can  be  imagined  where  the  task  would  be  extremely 
difficult,  but  if  the  rule  is  the  only  just  one,  as  we  think 
has  been  shown,  the  difficulty  in  its  application  in  extreme 
cases  is  not  a  sufficient  reason  for  abandoning  it  and  leaving 
property  without  any  protection  from  the  law. 

"It  does  not  necessarily  follow  that  a  rule  for  the  govern- 
ment  of  rights  in  percolating  water  must  also  be  followed 
as  to  underground  seepages  or  percolations  of  mineral  oil. 
Oil  is  not  extracted  for  use  in  agriculture,  or  upon  the  land 
from  which  it  is  taken,  but  solely  for  sale  as  an  article  of 
merchandise,  and  for  use  in  commerce  and  manufactures. 
The  conditions  under  which  oil  is  found  and  taken  from 
the  earth  in  this  State  are  in  no  important  particulars  dif- 
ferent from  those  present  in  other  countries  where  it  is 
produced.  There  is  no  necessary  parallel  between  the  con- 
ditions respecting  the  use  and  development  of  water  and 
those  aflfecting  the  production  of  oil.  Whether  in  a  contest 
between  two  oil  producers  concerning  the  drawing  out  by 
one  of  the  oil  from  under  the  land  of  the  other  we  should 
follow  the  rule  adopted  by  the  courts  of  other  oil-producing 
States,  or  apply  a  rule  better  calculated  to  protect  oil  not 
actually  developed,  is  a  question  not  before  us  and  which 
need  not  be  considered."  (Decided  by  the  Supreme  Court 
of  California  in  the  case  of  Katz  vs.  Walkinshaw,  which 
decision  is  printed  in  Volume  26  of  California  Decisions, 
page  820.) 

Section  1079.— WATER  COMPANIES.— Water  com- 
panies are  incorporated  under  the  general  laws  applying 
to  corporations  in  California,  to  supply  cities  and  towns 
with  water.  The  law  provides,  however,  that  no  corpo- 
ration formed  to  supply  any  city  and  county,  or  city  or 
town,  with  water  must  do  so  unless  previously  authorized 
by  an  ordinance,  or  unless  it  is  done  under  a  contract; 
that  notwithstanding  any  such  contract,  the  municipality 
shall  retain  the  right  to  regulate  the  rate  to  be  charged  for 


646  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

water;   that   no   exclusive   right   shall   be   granted   to   any 
water  company;  and  that  no  contract  or  franchise  shall  be 
made  for  a  term  exceeding  fifty  years. 
Civil  Code,  Section  548. 

(a) — Water  in  Case  of  Fire. — The  means  of  extinguish- 
ing fires  in  a  city  or  town,  the  fire  apparatus  and  the  fire 
company,  are  under  the  direction  and  control  of  the  munici- 
pality. And  a  water  company,  as  a  condition  of  the  privi- 
lege granted  to  it  tp  supply  the  inhabitants  with  water, 
must  supply  the  municipality  with  water  to  the  extent  of 
its  means  in  case  of  fire,  free  of  charge. 
Civil  Code,  Section  545. 

(b) — Water  Rates. — The  Board  of  Supervisors  of  a  city 
and  county,  or  the  Board  of  Trustees  of  a  city  or  town, 
are  compelled  to  annually  fix  the  rates  to  be  charged  and 
collected  by  any  water  company  supplying  water  to  the 
.  inhabitants  or  the  municipality.  The  rates  thus  fixed  hold 
good  for  one  year. 

General  Laws  of  California,  page  1268. 

(c) — Duty  to  Furnish  Water. — All  corporations  formed 
to  supply  water  to  cities  or  towns  must  furnish  pure,  fresh 
water  to  all  the  inhabitants  for  domestic  purposes,  so  long 
as  the  supply  permits,  at  reasonable  rates,  and  without  dis- 
tinction of  persons,  upon  proper  demand  therefor.  If  a 
water  company  refuses  to  supply  an  inhabitant  of  a  town 
with  water,  upon  demand  and  tender  of  the  charge,  the 
company  may  be  compelled  to  do  so,  by  a  suit  in  the  Su- 
perior Court. 

Civil  Code,  Section  549. 

(d) — Water  Company  Not  Liable  for  Loss  by  Fire. — A 
very  important  decision  was  made  by  the  Supreme  Court 
of  California,  in  February,  1904,  the  first  case  of  the  kind 


WATER  AND  WATER  RIGHTS.  647 

in  the  United  States.  A  fire  occurred  in  the  town  of  Ukiah, 
and  at  the  time,  through  the  negligence  of  the  water  com- 
pany, there  was  not  sufficient  water  in  the  mains  to  extin- 
guish it,  or  to  keep  it  from  spreading.  A  part  of  the  Town 
Hall  and  other  city  property  was  destroyed.  The  town 
sued  the  water  company  for  damages.  On  appeal  to  the 
Supreme  Court,  the  decision  was  in  favor  of  the  water 
company,  the  Court  holding  that  where  a  water  company 
furnishes  water  to  a  municipality  for  general  fire  purposes, 
it  cannot  be  held  liable  for  the  value  of  property  destroyed 
by  fire,  although  the  loss  may  be  due  to  the  negligence  of 
the  company.  A  water  company  is  not  an  insurer  against 
loss  by  fire.  To  be  liable  at  all,  in  any  event,  for  loss  of 
property  by  fire,  there  would  have  to  be  an  express  con- 
tract between  the  owner  and  the  company  by  which  the 
latter  agreed  to  pay  for  certain  property,  if  destroyed  by 
fire  through  its  failure  to  supply  water.  A  franchise  to 
supply  water  for  general  fire  purposes  does  not  create  such 
contract,  and  a  water  company  is  not  liable  in  California 
for  loss  by  fire.  (Decided  by  the  Supreme  Court  of  Cali- 
fornia in  the  case  of  Town  of  Ukiah  vs.  Ukiah  Water  and 
Improvement  Company,  which  decision  is  printed  in  Vol- 
ume 27  of  the  California  Decisions,  page  353.) 

(e) — Water  Rates  Must  Be  Reasonable. — The  rates  fixed 
annually  must  be  reasonable,  sufficient  in  amount  to  afford 
the  water  company  a  fair  and  just  compensation  for  the 
services  rendered  by  it  in  furnishing  water  to  the  city  and 
its  inhabitants.  But  in  making  an  estimate  of  what  will 
be  a  fair  rate,  the  city  cannot  include  interest  on  the  com- 
pany's indebtedness,  nor  the  sum  the  plant  will  depreciate 
annually  aside  from  the  sum  requisite  for  its  maintenance 
and  repair.  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Redlands  Domestic  Water  Co.  vs.  City  of 
Redlands,  which  decision  is  printed  in  Volume  121  of  the 
California  Reports,  page  365.) 


648  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

(f) — Damages  for  Failure  to  Supply  Water. — In  an  ac- 
tion for  the  failure  of  a  water  company  to  furnish  plaintiff 
with  water,  plaintiff  cannot  recover  the  profits  he  would 
have  realized  from  crops  that  he  would  have  raised  had 
the  water  been  furnished  by  defendant,  less  the  cost  of 
planting,  etc.,  as  such  profits  are  too  remote  and  speculative ; 
but  the  proper  damages  are  the  difference  between  the 
rental  value  of  the  land  with  water  and  its  rental  value 
without  it.  (Decided  by  the  Supreme  Court  of  California 
in  the  case  of  Crow  vs.  San  Joaquin  Canal  Co.,  which 
decision  is  printed  in  Volume  130  of  the  California  Reports, 
page  309.) 

.  (g) — Duty  to  Fix  Reasonable  Rates  Can  Be  Compelled. — 

Where  a  city  Board  have  arbitrarily,  without  investiga- 
tion, and  without  any  exercise  of  judgment  or  discretion, 
fixed  water  rates,  without  any  reference  to  what  they 
should  be,  without  reference  either  to  the  expense  neces- 
sary to  furnish  water  or  to  what  is  a  fair  and  reasonable 
compensation  therefor,  so  as  to  render  it  impossible  to 
furnish  water  without  loss,  and  so  low  as  to  amount  to  a 
practical  confiscation  of  the  property  invested  in  the  busi- 
ness, it  is  within  the  jurisdiction  of  a  court  of  equity  to 
set  aside  such  ordinance  and  direct  the  Board  to  fix  fair 
and  reasonable  rates.  (Decided  by  the  Supreme  Court  of 
California  in  the  case  of  Spring  Valley  Water  Works  vs. 
City  and  County  of  San  Francisco,  which  decision  is  printed 
in  Volume  82  of  the  California  Reports,  page  286.) 

(h) — Pollution  of  Water. — The  courts  will  interfere  to 
prevent  the  pollution  of  the  waters  of  a  stream,  from  de- 
posits of  offensive  matter.  For  .instance,  where  there  are 
lower  riparian  owners,  one  has  no  right  to  pollute  the 
waters  of  a  stream  by  maintaining  a  cow  stable  and  hog 
pen  on  its  banks,  but  must  keep  his  stock  at  a  reasonable 
distance  away  from  the  stream.  (Decided  by  the  Supreme 
Court  of  California  in  the  case  of  People  vs.   Elk  River 


WATEK  xS.ND  WATER  RIGHTS.  649 

Mill  Co.,  which  decision  is  printed  in  Volume  107  of  the 
California  Reports,  page  221.) 

Section  1080.— CONDEMNATION  OF  WATER  FOR 
PUBLIC  USE. — The  riparian  owner's  property  in  the 
water  of  a  stream  may  be  condemned  for  public  use ;  as, 
to  supply  the  inhabitants  of  a  city  or  town.  But  upon  any 
such  condemnation,  which  is  by  a  suit  in  the  Superior 
Court,  the  judgment  will  direct  the  payment  to  the  owner 
of  the  value  of  the  water  to  him,  and  such  damages  as  he 
may  sustain  from  being  deprived  of  the  water.  This  is 
done  as  a  compensation  to  him  for  the  loss  of  his  riparian 
rights.  The  amount  of  damages  which  will  justly  com- 
pensate for  the  taking  of  the  water  for  public  use  will  be 
determined  in  each  case  by  a  jury  selected  for  the  purpose. 

Section  1080a.— ARTESIAN  WELLS.— The  Legislature 
of  1907  passed  a  law  to  prevent  the  waste  of  water  from 
artesian  wells.  This  law  provides  that  any  artesian  well 
which  is  not  capped,  equipped,  or  furnished  with  such 
mechanical  appliance  as  will  readily  and  effectively  prevent 
the  flow  of  any  water  therefrom  is  to  be  deemed  a  public 
nuisance.  The  owner,  tenant,  or  occupant  of  land  upon 
which  an  artesian  well  is  situated,  who  causes  or  permits 
a  waste  of  water  therefrom,  is  guilty  of  a  misdemeanor. 
The  water  must  not  be  allowed  to  run  from  the  well  into 
any  river,  creek,  or  other  natural  water  course  or  channel, 
or  into  any  bay  or  pond,  or  into  street,  road  or  highway, 
unless  thereafter  taken  out  and  used  for  the  beneficial  pur- 
poses of  irrigation  of  land  or  domestic  use;  and  whenever 
water  from  an  artesian  well  is  used  to  irrigate  land,  not 
more  than  five  per  cent  of  it  must  be  allowed  to  escape. 
The  punishment  for  wasting  water  from  an  artesian  well, 
or  for  failure  to  keep  the  well  capped  and  protected,  is  by 
a  fine  of  not  less  than  $25  nor  more  than  $500,  or  imprison- 
ment in  the  county  jail  for  a  period  of  not  more  than  six 
months,  or  both  such  fine  and  imprisonment. 

Act  of  the  Legislature,  approved  March  6,  1907. 

Act  of  the  Legislature,  approved  March  25,  1909. 


650  BUSINESS  LAWS  FOE  BUSINESS  MEN. 

Section  1080b.— FLOOD  WATERS.— When  usually  re- 
curring floods  or  freshets  are  accustomed  to  swell  the  banks 
of  a  river  beyond  the  low  water  mark  of  dry  seasons  and 
overflow  them,  but  such  waters  flow  in  a  continuous  body 
with  the  rest  of  the  water  in  the  stream  and  along  well- 
defined  boundaries,  they  constitute  a  single  natural  water- 
course. It  is  immaterial  that  the  boundaries  of  such  stream 
vary  with  the  seasons  or  that  they  do  not  consist  of  visible 
banks.  It  is  only  necessary  that  there  be  natural  and  accus- 
tomed limits  to  the  channel.  Water  flowing  under  such  cir- 
cumstances as  these,  notwithstanding  they  may  consist  of  a 
large  expanse  of  water  on  either,  side  of  the  main  channel, 
constitute  but  a  single  watercourse,  and  riparian  rights  per- 
tain to  the  whole  of  them.  (Decided  by  the  Supreme  Court 
of  California,  in  the  case  of  Miller  &  Lux  vs.  Madera  Canal 
and  Irrigation  Company,  which  decison  is  printed  in  Volume 
34  of  California  Decisions,  page  339.) 

Sections  1081  to  1125,  inclusive,  "United  States  Home- 
stead Laws,"  are  omitted  from  the  Eighth  Edition. 


PART  IX 

ADMINISTRATION  OF  ESTATES 
Estates  of  Deceased  Persons 

Section  1126.— SETTLEMENT  OF  ESTATES.— Of  in- 
terest to  all  is  the  subject  of  the  administration  and  settle- 
ment of  estates  in  the  State  of  California.  Under  this 
head  will  be  shown  the  various  steps  to  be  taken  in  the  appoint- 
ment of  executors  or  administrators,  the  management  of 
the  property  of  an  estate,  the  selling  of  property  under 
orders  of  the  Court,  the  rights  of  heirs  and  legatees,  and 
the  final  settlement  and  distribution. 

Section  1127— EXECUTORS  AND  ADMINISTRA- 
TORS.— An  executor  is  appointed  where  there  is  a  will,  and 
is  either  appointed  by  the  Court  or  named  in  the  will. 

An  administrator  is  appointed  by  the  Court  where  there 
is  no  will. 

Authority  to  an  executor  is  given  by  an  appointment  of 
the  Superior  Court,  and  called  Letters  Testamentary. 

Authority  to  an  administrator  is  given  by  the  same  Court, 
and  called  Letters  of  Administration. 

Section  1128.— WHERE  LETTERS  WILL  BE 
GRANTED. — Letters  testamentary  to  an  executor,  or  let- 
ters of  administration  to  an  administrator,  must  be  granted, 
(1)  in  the  county  of  which  deceased  was  a  resident  at 
the  time  of  his  death,  no  matter  where  he  died;  or,  (2)  in 
the  county  in  which  he  died,  leaving  property  in  that 
county,  and  not  being  a  resident  of  the  State;  or,  (3)  in 
the  county  in  which  any  part  of  his  estate  may  be,  when 
he  dies  out  of  this  State  and  was  not  a  resident  here  at  the 

(651) 


652  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

time  of  his  death ;  or,  (4)  in  the  county  in  which  any  part 
of  the  estate  may  be,  the  decedent  not  being  a  resident  of 
the  State,  and  not  leaving  estate  in  the  county  in  which  he 
died;  or,  (5)  in  all  other  cases,  in  the  county  where  appli- 
cation for  letters  is  first  made. 

When  the  estate  of  the  decedent  is  in  more  than  one 
county,  he  having  died  out  of  the  State,  and  not  having 
been  a  resident  thereof  at  the  time  of  his  death,  or  being 
such  non-resident,  and  dying  within  the  State,  and  not 
leaving  estate  in  the  county  where  he  died,  the  Superior 
Court  of  that  county  in  which  application  is  first  made  for 
letters  testamentary  or  of  administration  has  exclusive  juris- 
diction of  the  settlement  of  the  estate. 

Code  of  Civil  Procedure,  Sections  1294,  1295. 

Section  1129.— PROOF  OF  WILL.— Any  person  having 
a  will  in  his  possession  must  produce  and  deliver  it  to  the 
Superior  Court,  or  the  executor  named  in  the  will,  within 
thirty  days  after  he  receives  information  that  the  maker 
is  dead ;  and  if  he  fails  to  do  this  he  will  be  responsible  for 
all  damages  sustained  by  any  one  thereby. 

Code  of  Civil  Procedure,  Section  1298. 

(a) — Who  May  Petition  for  Probate  of  Will. — Any  ex- 
ecutor, devisee,  or  legatee  named  in  any  will,  or  any  other 
person  interested  in  the  estate,  may,  at  any  time  after  the 
death  of  the  testator,  petition  the  Superior  Court  to  have 
the  will  proved. 

Code  of  Civil  Procedure,  Section  1299. 

(b) — When  Executor  Forfeits  Right  to  Letters. — If  the 
person  named  in  a  will  as  executor  wilfully  fails,  for  thirty 
days  after  he  has  knowledge  of  the  death  of  the  testator 
and  that  he  is  named  as  executor,  to  petition  the  proper 
court  for  the  probate  of  the  will,  he  will  forfeit  his  rights 
as  executor  under  the  will. 

Code  of  Civil  Procedure,  Section  1301. 

(c) — Executor  May  Decline  to  Act. — An  executor  named 
in  a  will  may  decline  to  act,  by  filing  a  written  notice  that 


ADMINISTRATION  OF  ESTATES.  653 

he  renounces  his  appointment  and  declines  to  act  as  such, 
at  the  same  time  that  he  files  the  will. 

(d) — Proof  of  Will. — When  a  will  is  presented  for  pro- 
bate, the  Superior  Court  will  hear  the  proofs  and  issue  a 
certificate  of  probate.  The  persons  who  signed  the  will  as 
witnesses  are  examined  as  to  their  knowledge  of  its  execu- 
tion, and  to  show  that  it  is  really  the  will  of  the  testator. 

When  one  of  the  witnesses  to  a  will  is  examined,  and  the 
others  are  dead  or  insane,  or  their  residence  unknown,  other 
testimony,  of  the  handwriting  of  the  testator,  and  other 
circumstances,  will  be  taken  sufficient  to  prove  that  the  in- 
strument produced  is  really  the  last  will  and  testament  of 
the   deceased. 

If  all  the  witnesses  to  the  will  are  dead,  or  insane,  or 
not  residing  in  the  county,  the  Court  will  allow  the  will 
to  be  proved  by  other  evidence — the  handwriting  of  the 
testator,  the  surrounding  circumstances,  the  handwriting 
of  the  subscribing  witnesses,  etc. 

Code  of  Civil  Procedure,  Section  1315. 

When  a  will  is  presented  which  is  all  in  the  handwriting 
of  the  testator,  an  olographic  will,  it  will  be  proved  by  the 
testimony  of  persons  who  know  his  handwriting. 

(e) — Recording  Will. — The  will  and  a  certificate  of  the 
proof  thereof  must  be  filed  and  recorded  by  the  clerk  of  the 
court. 

Code  of  Civil  Procedure,  Section  1318. 

(f) — Proof  of  Lost  or  Destroyed  Will. — The  Superior 
Court  has  power  to  take  proof  of  a  will,  although  the  paper 
itself  be  lost  or  destroyed.  But  no  will  can  be  proved  as  a 
lost  or  destroyed  will,  unless  the  proof  shows  that  the  will 
was  in  existence  at  the  time  of  the  death  of  the  testator, 
or  was  fraudulently  or  by  public  calamity  destroyed  in  his 
life-time;  provided,  if  the  testator  be  committed  to  any 
state  hospital  for  the  insane,  and  after  such  commitment 
his  will  is  destroyed  by  public  calamity,  and  the  testator 
is  never  restored  to  competency,  then  after  his  death  the 
will  may  be  probated  as  though  it  were  in  existence  at  the 


654  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

time  of  his  death.  The  provisions  of  a  lost  or  destroyed  will 
must  be  clearly  and  distinctly  proved  by  at  least  two  cred- 
ible witnesses. 

Code  of  Civil  Procedure,  Section  1339  (as  amended 
March  6,  1907). 

(g) — Proof  of  Foreign  Will. — Wills  probated  in  any 
other  State  or  Territory  of  the  United  States,  or  in  any 
foreign  country  or  state,  are  admitted  to  probate  in  this 
State  on  the  production  of  a  copy  and  the  original  record 
of  probate  in  another  country. 

Section    1130.— LETTERS    TESTAMENTARY.— After 

probate  of  a  will,  letters  testamentary  will  be  granted  to 
the  persons  therein  named  as  executors.  If  there  are  two  or 
more  executors  named  in  the  will,  and  some  decline  to  act, 
letters  will  be  granted  to  those  who  remain. 

Any  person  interested  in  a  will  may  file  objections  in 
writing  to  the  granting  of  letters  testamentary  to  any  of  the 
persons  named  as  executors,  and  the  objections  will  be 
heard  and  determined  by  the  court. 

If  the  executor  named  in  the  will  be  a  minor  or  absent 
from  the  State,  letters  will  be  granted  to  some  other  person, 
who  will  hold  the  trust  until  the  executor  named  in  the 
will  becomes  of  age  or  returns  to  the  State.  If  two  execu- 
tors are  named  in  the  will,  and  one  of  them  is  a  minor  or 
absent  from  the  State,  the  one  who  can  qualify  will  act  as 
executor  alone  until  such  time  as  the  other  becomes  of  age 
or  returns  to  the  State.  The  latter  will  then  have  the  right 
to  act  as  joint  executor. 

Code  of  Civil  Procedure,  Sections  1349,  1354,  1355. 

(a) — Revocation  of  Letters. — If  an  executor  or  adminis- 
trator becomes  of  unsound  mind,  or  is  convicted  of  felony 
or  infamous  crime,  or  becomes  a  habitual  drunkard,  or 
mismanages  or  wastes  the  estate,  he  will  be  removed  by 
the  Superior  Court  and  another  will  be  appointed  in  his 
place. 


ADMINISTRATION  OF  ESTATES.  655 

(b) — Married  Woman  or  Corporation  May  Act. — A  mar- 
ried woman  may  act  as  executrix  of  a  will,  or  as  administra- 
trix of  an  estate. 

A  corporation  may  act  as  executor  or  administrator,  if 
authorized  by  its  articles  of  incorporation  so  to  do. 

Code  of  Civil  Procedure,  Sections  1348,  1350,  1352. 

Section  1131.— LETTERS  OF  ADMINISTRATION.— 

If  a  person  dies  without  making  a  will,  the  Superior  Court 
will  grant  letters  of  administration  of  his  estate.  If  a  per- 
son dies  leaving  a  will,  but  the  will  does  not  name  any  ex- 
ecutor, the  court  will  appoint  an  administrator,  called  an 
"administrator  with  the  will  annexed,"  who  will  have  power 
to  carry  out  the  provisions  of  the  will  in  the  same  manner 
as  he  would  if  named  in  the  will. 

(a) — Who  Are  Entitled  to  Letters  of  Administration. — 
The  persons  entitled  to  letters  of  administration  are  as 
follows : 

(1)  The  surviving  husband  or  wife,  or  some  competent 
person  whom  he  or  she  may  request  to  have  appointed ; 

(2)  The  children ; 

(3)  The  father  and  mother; 

(4)  The  brothers; 

(5)  The  sisters ; 

(6)  The  grandchildren ; 

(7)  The  next  of  kin  entitled  to  share  in  the  distribution 
of  the  estate; 

(8)  The  public  administrator; 

(9)  The  creditors ; 

(10)  Any  person   legally  competent. 
If  the  deceased  was  a  member  of  a  partnership  at  the 
time  of  his  death,  the  surviving  partner  cannot  be  appointed 
administrator  of  the  estate. 

Act  of  the  Legislature,  in  eflFect  May  18,  1907. 

Section  1132.— WHO  ARE  INCOMPETENT  TO  ACT 
AS    EXECUTOR    OR    ADMINISTRATOR.— A    person 


656  BUSINESS  LAWS  FOR  BUSINESS  MEN. 

may  be  entitled  to  letters  of  administration,  as  provided  in 
the  preceding  section,  and  at  the  same  time  be  incompetent 
for  personal  reasons.  For  the  law  provides  that  in  the 
following  cases  the  persons  otherwise  entitled  must  not  be 
appointed:  (1)  When  the  person  is  under  the  age  of 
majority;  or,  (2)  has  been  convicted  of  an  infamous  crime; 
or,  (3)  when  he  is  adjudged  by  the  court  incompetent  to 
execute  the  duties  of  the  trust  by  reason  of  drunkenness, 
improvidence,  or  want  of  understanding  or  integrity. 

Code  of  Civil  Procedure,  Section   1369;  Code  of 

Civil     Procedure,    Section     1350     (as    amended 

March  16,  1907). 

Section  1133.— OATH  OF  EXECUTOR  OR  ADMIN- 
ISTRATOR.— The  executor  or  administrator  must  take 
and  subscribe  an  oath,  that  he  will  perform,  according  to 
law,  the  duties  of  his  trust.  This  oath  is  in  writing  and 
is  recorded  by  the  clerk  of  the  court  with  the  letters  of  ad- 
ministration. 

Code  of  Civil  Procedure,  Section  1387. 

Section  1134.— BOND  OF  EXECUTOR  OR  ADMIN- 
ISTRATOR.— Executors  or  administrators  in  the  State  of 
California  must  give  a  bond,  for  the  faithful  discharge  of 
their  duties,  in  an  amount  equal  to  twice  the  value  of  the 
personal  property  belonging  to  the  estate,  and  twice  the 
probable  value  of  the  rents,  profits,  and  issues  of  the  real 
property.  The  court  ascertains  these  values  by  examining 
on  oath  the  party  applying  for  letters,  or  any  other  person.  ■ 
The  bond  must  be  signed  by  two  or  more  sureties,  to  be 
approved  by  the  judge  of  the  court. 

Code  of  Civil  Procedure,  Section  1388. 

An  additional  bond  must  be  given  whenever  the  sale  of 
any  real  estate  is  to  be  made  by  order  of  the  court ;  but  no 
additional  bond  is  necessary  when  it  appears  that  the 
amount  of  the  bond  already  given  is  twice  the  value  of  the 
personal  property  remaining  in  or  that  may  come  into  the 


ADMINISTRATION   OP   ESTATES.  657 

possession  of  the  executor  or  administrator  (including  the 
annual  rents,  profits,  and  issues  of  the  real  estate),  and 
twice  the  probable  amount  to  be  realized  on  the  sale  of  the 
real  estate  ordered  to  be  sold. 

Code  of  Civil  Procedure,  Section  1389. 

Section    1135.— SEPARATE     BONDS.— When   two   or 

more  persons  are  appointed  executors  or  administrators, 
the  Court  must  require  and  take  a  separate  bond  from  each 
of  them. 

Code  of  Civil  Procedure,  Section  1391. 

Section  1136.  — WHEN  EXECUTOR  MAY  ACT 
WITHOUT  BONDS.— A  will  may  expressly  provide  that 
the  executor  named  in  it  shall  act  without  giving  bonds. 
Where  a  will  does  so  provide,  the  executor  will  have  power 
to  administer  the  estate,  including  the  sale  of  property, 
without  giving  any  bonds  whatever.  If  the  estate  is  not 
managed  properly,  however,  the  Court  has  power  to  demand 
a  bond  of  the  executor,  even  where  the  will  declares  that 
no  bond  shall  be  given.  It  is  the  duty  of  the  Court,  no 
matter  what  the  provisions  of  the  will  may  be,  to  see  that 
the  estate  is  properly  managed,  without  waste  or  unneces- 
sary or  wilful  losses. 

Code  of  Civil  Procedure,  Section  1396. 

Section   1137.— SPECIAL   ADMINISTRATOR.— When 

there  is  delay  in  application  for  or  the  granting  of  letters 
to  an  executor  or  administrator,  or  when  no  sufficient  bond 
is  filed,  or  when  an  executor  or  administrator  dies  or  is 
suspended  or  removed,  the  Court  may  appoint  a  special 
administrator,  to  act  for  the  time  being,  and  whose  duty 
it  shall  be  to  take  charge  of  and  preserve  the  estate  until 
such  time  as  a  regular  executor  or  administrator  shall  be 
appointed  and  qualified  to  act.  The  special  administrator 
must  give  a  bond  in  the  same  manner  as  other  admin- 
istrators. 

Code  of  Civil  Procedure,  Section  1411. 


658  BUSINESS   LAWS   FOR  BUSINESS   MEN. 

Section     1138.— RELEASE     OF     BONDSMEN.  — The 

bondsmen  of  an  executor  or  administrator  may  be  released 
by  the  court.  When  a  surety  of  any  executor  or  adminis- 
trator desires  to  be  released  from  the  bond,  and  from 
future  responsibility,  he  must  make  an  application  there- 
for to  the  Superior  Court.  The  court  will  then  require 
the  executor  or  administrator  to  appear  and  give  a  bond 
with  new  sureties,  and  if  he  neglects  to  do  so  his  letters 
will  be  revoked,  and  a  new  executor  or  administrator  ap- 
pointed. If  new  sureties  are  given  to  the  satisfaction  of  the 
judge,  the  surety  who  applied  for  release  will  not  be  liable 
on  the  bond  for  any  subsequent  act,  default,  or  misconduct 
of  the  executor  or  administrator. 

Code  of  Civil  Procedure,  Sections  1403,  1404,  1405. 

Section  1139.— RESIGNATION  OF  EXECUTOR  OR 
ADMINISTRATOR. — An  executor  or  administrator  may 
resign  if  he  wishes  to  do  so.  He  may  do  this  by  filing  in 
the  Superior  Court  a  written  notice  that  he  resigns  his  ap- 
pointment. But,  before  his  resignation  can  be  accepted  by 
the  court  he  must  file  his  accounts  and  have  them  allowed 
and  settled  by  the  court.  The  court  can  then  make  an  or- 
der allowing  and  accepting  the  resignation. 

If  there  are  a  number  of  executors  or  administrators, 
and  one  of  them  resigns,  it  will  be  the  duty  of  those  who 
remain  to  administer  and  settle  up  the  estate. 
Code  of  Civil  Procedure,  Section  1427. 

Section  1140.— SUIT  AGAINST  BONDSMEN.— If  the 

letters  of  an  executor  or  administrator  are  revoked,  or  if 
he  resigns  or  dies,  and  it  is  discovered  that  he  has  been 
faithless  to  his  trust,  any  person  injured  by  his  bad  conduct 
may  bring  a  suit  against  his  bondsmen  to  make  good  the 
losses  sustained. 

Section  1141.— INVENTORY  AND  APPRAISEMENT. 

— As  soon  as  an  executor  or  administrator  has  qualified, 
he    is    entitled   to   the    immediate    possession   of   the    real 


ADMINISTRATION   OP   ESTATES.  659 

estate  and  personal  property  of  the  deceased.  He  may 
receive  the  rents  and  profits  of  the  real  estate,  until  the 
estate  is  settled.  And,  as  he  has  possession  and  charge  of 
the  estate,  the  law  requires  him  to  show  to  the  court  what 
property  the  estate  consists  of,  and  its  location  and  condi- 
tion. This  he  does  by  having  an  inventory  and  appraise- 
ment made,  which  is  filed  with  the  court.  The  inventory 
is  made  by  the  executor  or  administrator,  under  oath,  con- 
taining a  true  statement  of  the  real  and  personal  estate  of 
the  deceased  which  has  come  to  his  possession  or  knowl- 
edge, and  must  be  made  and  filed  within  three  months 
after  his  appointment.  Attached  to  the  inventory  must  be 
an  appraisement  of  the  value  of  the  property  by  at  least 
two  disinterested  persons,  appointed  by  the  court.  The 
court  must  appoint  three  appraisers,  but  it  is  sufficient  if 
two  of  them  act.  If  the  whole  estate  consists  of  money, 
there  need  not  be  an  appraisement,  but  an  inventory  must 
be  made  and  returned  by  the  executor  or  administrator,  as 
in  other  cases.  If  the  estate  is  less  than  $1,500  in  value,  only 
one  appraiser  will  be  appointed. 

Act  of  the  Legislature,  approved  April  21,  1909. 

(a) — Compensation  of  Appraiser. — The  appraisers  are 
entitled  to  receive  a  reasonable  compensation  for  their  ser- 
vices, not  to  exceed  five  dollars  per  day,  to  be  allowed  by 
the  court. 

(b) — When  Additional  Inventory  Required. — Whenever 
property  not  mentioned  in  the  first  inventory  comes  to  the 
possession  or  knowledge  of  the  executor  or  administrator, 
he  must  make  and  file  another  inventory  and  appraisement 
covering  such  property. 

Code  of  Civil  Procedure,  Sections  1443,  1444,  1446, 
1451. 

Section  1142.— MONEY  IN  BANK.— The  surviving  hus- 
band or  wife  of  any  deceased  person,  or,  if  no  husband  or 
wife'  is  living,  then  the  children  of  such  decedent,   may, 


660  BUSINESS   LAWS   FOR   BUSINESS    MEN. 

without  procuring  letters  of  administration,  collect  of  any 
bank  any  sum  which  the  deceased  may  have  left  on  deposit 
in  such  bank  at  the  time  of  his  or  her  death ;  provided,  such 
deposit  does  not  exceed  the  sum  of  $500.  An  affidavit  must 
be  made  that  the  whole  amount  left  on  deposit  by  decedent 
in  any  and  all  banks  did  not  exceed  the  sum  of  $500. 

Act  of  the  Legislature,  in  effect  May  16,  1907. 

Section  1143.— PROBATE  HOMESTEAD  AND  FAM- 
ILY ALLOWANCE.— The  court  will  set  aside  a  home- 
stead for  the  use  of  the  widow  and  children,  whether  there 
was  a  homestead  during  the  life  of  the  decedent  or  not. 
This  homestead  will  be  set  aside  out  of  the  community  prop- 
erty, if  there  be  any,  or  out  of  the  separate  property  of  the 
deceased,  if  there  is  no  community  property.  The  home- 
stead will  be  exempt  frorri  all  claims  against  the  estate, 
whether  individual  debts  of  the  deceased,  or  community 
debts.  The  homestead  is  for  the  use  and  support  of  the 
widow,  child,  or  children,  of  the  deceased,  and  is  not  an 
asset  of  the  estate  for  the  payment  of  debts. 

When  a  homestead  is  set  apart  to  the  use  of  the  family, 
the  property,  with  one  exception  stated  below,  is  the  prop- 
erty of  the  surviving  widow,  if  there  is  no  minor  child.  If 
the  decedent  left  also  a  minor  child  or  children,  the  one 
half  of  such  homestead  belongs  to  the  widow,  and  the 
remainder  to  the  child,  or  in  equal  shares  to  the  children,  if 
there  are  more  than  one.  If  there  is  no  wife  surviving,  the 
whole  property  belongs  to  the  minor  child  or  children.  If 
the  property  set  apart  is  a  homestead  selected  from  the  sep- 
arate property  of  the  decedent,  the  court  can  set  it  apart 
only  for  a  limited  period,  and,  subject  to  such  homestead 
right,  the  title  vests  in  the  heirs  of  the  deceased.  If,  for 
instance,  a  man  dies  leaving  a  wife  and  minor  children,  and 
the  court  sets  apart  a  homestead  from  the  separate  property 
of  the  deceased  for  the  use  of  the  family,  for  a  period  of  five 
years ;  upon  the  expiration  of  the  term  of  five  years,  limited 
by  the  court  as  the  life  of  the  homstead,  the  property  will  be 


ADMINISTRATION   OF   ESTATES.  661 

distributed  by  order  of  the  court,  one  third  to  the  widow, 
and  two  thirds  to  the  children.  The  title  to  the  property 
vests  in  the  heirs  on  the  death  of  the  person  from  whose 
property  the  homestead  was  selected. 

(a) — Exempt  Property. — In  addition  to  the  homestead, 
the  law  provides  that  the  court  must  set  apart  for  the  use 
of  the  family  all  the  property  of  the  estate  which  is  by  law 
exempt  from  execution. 

(b) — Extra  Allowance. — If  the  amount  set  apart  be  in- 
sufficient for  the  support  of  the  widow  and  minor  children, 
the  court  will  make  such  further  reasonable  allowance  out 
of  the  estate  as  shall  be  necessary  for  the  maintenance  of 
the  family,  according  to  their  circumstances,  during  the 
progress  of  the  settlement  of  the  estate.  Any  such  allow- 
ance made  b}'^  the  court  must  be  paid  by  the  executor  or 
administrator  in  preference  to  all  other  charges,  except 
funeral  charges,  and  expenses  of  administration ;  and  any 
such  allowance,  whenever  made,  may,  in  the  discretion  of 
the  court,  take  effect  from  the  death  of  the  decedent. 

Code  of  Civil  Procedure,  Sections  1465,  1466,  1467, 
1468. 

Section  1144.— ADMINISTRATION  WHEN  ESTATE 
DOES  NOT  EXCEED  FIFTEEN  HUNDRED  DOL- 
LARS.— If  it  appears  from  the  inventory  that  the  value  of 
the  whole  estate  does  not  exceed  the  sum  of  fifteen  hundred 
dollars,  the  court  must  make  an  order  assigning  to  the 
widow  of  the  deceased,  or  if  there  be  no  widow  then  to 
the  minor  children,  the  whole  of  the  estate.  And  the  title 
to  the  property  will  vest  absolutely  in  such  widow  or  minor 
children,  after  the  payment  of  the  expenses  of  the  last 
illness  of  the  deceased,  funeral  charges,  and  expenses  of 
administration.  The  property  will  still  be  subject,  how- 
ever, to  whatever  mortgages,  liens,  or  incumbrances  there 
may  have  been  upon  it  at  the  time  of  the  death  of  the 
deceased.  After  property  worth  not  more  than  fifteen  hun- 
dred dollars  is  assigned  by  the  court  as  above  stated,  there 


662  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

can  be  no  further  proceedings  in  the  administration,  unless 
other  property  is  afterwards  discovered. 

Code  of  Civil  Procedure,  Section  1469. 

Section  1145.— CLAIMS   AGAINST   THE   ESTATE.— 

After  property  has  been  appropriated  from  the  estate  for  the 
support  of  the  widow  or  minor  children,  as  provided  by  law, 
the  claims  of  creditors  are  to  be  next  considered. 

(a) — Notice  to  Creditors. — Every  executor  or  administra- 
tor must  publish  a  notice  to  creditors,  immediately  after 
his  appointment,  requiring  all  persons  having  claims  against 
the  decedent  to  present  them,  with  the  necessary  vouchers, 
to  the  executor  or  administrator,  at  the  place  of  his  resi- 
dence or  business,  to  be  specified  in  the  notice.  The  notice 
to  creditors  must  be  published  in  some  newspaper  in  the 
county,  if  there  is  one,  or  if  not,  then  in  a  newspaper  des- 
ignated by  the  court.  The  notice  must  be  published  as 
often  as  the  court  deems  necessary,  but  not  less  than  once 
a  week  for  four  successive  weeks.  The  time  expressed  in 
the  notice,  within  which  claims  against  the  estate  shall 
be  presented,  must  be  ten  months  after  its  first  publication, 
when  the  estate  exceeds  in  value  the  sum  of  ten  thousand 
dollars,  and  four  months  when  it  does  not  exceed  the  sum 
of  ten  thousand  dollars. 

(b) — Claims  Barred  if  not  Presented  in  Time. — All 
claims  arising  upon  contracts,  whether  the  same  be  due, 
not  due,  or  contingent,  must  be  presented  to  the  executor 
or  administrator  within  the  time  limited  in  the  legal  notice 
to  creditors,  and  any  claim  not  so  presented  is  barred  for' 
ever.  But,  when  it  is  made  to  appear  to  the  satisfaction 
of  the  court  by  the. affidavit  of  the  creditor,  that  the  creditor 
was  out  of  the  State  when  the  notice  was  published,  the 
claim  may  be  presented  at  an}''  time  before  a  decree  of  dis- 
tribution is  entered. 

(c) — Claims  Must  be  Verified. — E-\iery  claim  presented 
to  the  administrator  or  executor  must  be  sworn  to  by  the 
claimant  or  some  one  on  his  behalf,  who  must  make  affidavit 


ADMINISTRATION   OF   ESTATES.  663 

that  the  amount  is  justly  due,  that  no  payments  have  been 
made  thereon  which  are  not  credited,  and  that  there  are 
no  offsets  to  the  claim  within  the  knowledge  of  the  affiant. 
The  oath  may  be  taken  before  any  officer  authorized  to 
administer  oaths.  The  executor  or  administrator  may  also 
require  satisfactory  vouchers  to  be  produced  in  support 
of  the  claim. 

(d) — Allowance  and  Rejection  of  Claims.  —  When  a 
claim  has  been  presented  to  the  executor  or  administrator, 
he  must  indorse  thereon  his  allowance  or  rejection,  with 
the  day  and  date.  If  he  allows  the  claim,  it  must  be 
presented  to  the  judge  of  the  court,  who  must  in  the  same 
manner  indorse  on  it  his  allowance  or  rejection.  If  the 
executor  or  administrator,  or  the  judge,  refuse  or  neglect 
to  indorse  such  allowance  or  rejection  for  ten  days  after 
the  claim  has  been  presented  to  him,  such  refusal  or  neglect 
may,  at  the  option  of  the  claimant,  be  deemed  equivalent 
to  a  rejection  on  the  tenth  day;  and  if  the  presentation 
be  made  by  a  notary,  the  certificate  of  such  notary,  under 
seal,  will  be  prima  facie  evidence  of  such  presentation  and 
the  date  thereof. 

If  the  claim  be  presented  to  the  executor  or  administrator 
before  the  expiration  of  the  time  limited  for  the  presentation 
of  claims,  it  will  be  presented  in  time,  though  acted  upon 
by  the  executor  or  administrator,  and  by  the  judge,  after 
the  expiration  of  such  time. 

Every  claim  which  has  been  allowed  by  the  executor 
or  administrator  and  the  judge  must  be  filed  in  the  court, 
within  thirty  days  thereafter,  and  will  then  rank  among 
the  acknowledged  debts  of  the  estate,  to  be  paid  in  due 
course  of  administration. 

(e) — Suit  on  Rejected  Claim. — If  a  claim  is  rejected  by 
the  executor  or  administrator  or  by  the  court,  the  holder 
must  bring  suit  against  the  executor  or  administrator  with- 
in three  months  after  written  notice  of  its  rejection,  if  the 
claim  be  then  due,  or  within  two  months  after  it  becomes 


664  BUSINESS   LAWS   FOR  BUSINESS    MEN, 

due.    If  he  does  not  bring  suit  within  such  time,  the  claim 
will  be  barred  forever. 

(f) — Claim  When  Suit  Pending. — If  a  suit  is  pending 
against  a  person  at  the  time  of  his  death,  the  claim  must  be 
presented  to  the  administrator  or  executor,  the  same  as  if 
no  suit  had  been  commenced.  If  the  claim  is  not  so 
presented,  no  recovery  can  be  had  in  the  suit. 

(g) — Payment  of  Judgments. — When  any  judgment  has 
been  rendered  against  a  person  in  his  lifetime,  no  execution 
can  be  issued  on  the  judgment  after  his  death,  but  it  must 
be  presented  to  the  executor  or  administrator  in  the  same 
manner  as  any  other  claim ;  and,  if  justly  due  and  unsatis- 
fied, it  must  be  paid  in  due  course  of  administration. 

(h) — Allowance  of  Claim  in  Part. — Whenever  any  claim 
is  presented  to  an  executor  or  administrator  or  to  a  judge, 
and  he  is  willing  to  allow  the  claim  in  part,  he  must  state 
in  his  indorsement  the  amount  he  is  willing  to  allow.  If 
the  creditor  refuses  to  accept  the  amount  allowed  in  satis- 
faction of  his  claim,  and  sue  upon  it,  he  will  not  be  allowed 
any  costs  unless  he  recovers  a  greater  amount. 

(i) — Statute  of  Limitations. — No  claim  can  be  allowed 
by  the  executor  or  administrator,  or  by  a  judge  of  the 
Superior  Court,  which  is  barred  by  the  statute  of  limi- 
tations. 

No  claim  against  any  estate,  which  has  been  presented 
and  allowed,  is  affected  by  the  statute  of  limitations  pend- 
ing the  proceedings  for  the  settlement  of  the  estate, 

(j) — Claim  of  Executor  or  Administrator. — If  the  execu- 
tor or  administrator  is  himself  a  creditor,  his  claim,  duly 
authenticated  by  affidavit,  must  be  presented  for  allow- 
ance or  rejection  to  the  judge  of  the  court.  The  judge 
may  allow  or  reject  the  claim.  Its  allowance  by  the  judge 
is  sufficient  evidence  of  its  correctness.  If  the  claim  of 
an  executor  or  administrator  is  rejected  by  the  judge,  he 


ADMINISTRATION   OF   ESTATES.  665 

may  sue  the  estate,  and  summons  in  the  suit  can  be  served 
upon  the  judge. 

(k) — Failure  to  Present  Mortgage  Claim. — If  a  mort- 
gagee fails  to  present  his  claim  against  the  estate  to  the 
executor  or  administrator,  within  the  time  required  by 
law,  he  will  not  altogether  lose  his  debt.  He  may  still 
sue  upon  the  mortgage,  because  it  was  a  lien  upon  the 
property  of  the  deceased  during  his  lifetime.  But,  not 
having  presented  his  claim  as  required  by  law,  he  must  look 
only  to  the  property  of  the  estate  covered  by  his  mortgage 
for  the  collection  of  the  amount  due  him.  He  will  get  it 
all,  if  the  property  will  sell  for  enough  to  pay  it.  But  if 
the  money  cannot  be  got  out  of  the  mortgaged  property, 
by  failure  to  present  the  mortgage  claim  he  loses  the 
right  to  have  other  property  of  the  estate  applied  to  the 
payment  of  the  deficiency.  Where  a  mortgage  claim  is 
not  presented  against  the  estate,  the  debt  must  be  collected 
out  of  the  mortgaged  property,  or  not  at  all;  and  no  attor- 
ney fees  can  be  recovered  upon  such  a  claim  not  presented; 
even  though  the  mortgage  may  have  provided  for  attor- 
ney fees. 

Code  of  Civil  Procedure,  Sections  1490,  1491,  1491 
1494,  1496,  1497,  1498,  1499,  1500,  1502,  1503,  1505 

Section  1146.— SALE  OR  MORTGAGE  OF  PROP- 
ERTY.— No  sale  or  mortgage  of  any  property  of  an  estate 
is  valid  unless  made  under  order  of  the  court. 

(a) — Sale  of  Personal  Property. — At  any  time  after  re- 
ceiving letters  the  executor  or  administrator  may  apply 
to  the  court  for  an  order  to  sell  the  perishable  property 
of  the  estate,  and  other  personal  property  likely  to  de- 
preciate in  value,  or  which  will  incur  loss  or  expense  by 
being  kept,  and  so  much  other  personal  property  as  may 
be  necessary  to  pay  the  family  allowance, 

H  claims  against  the  estate  have  been  allowed,  or  money 
is  necessary  for  the  payment  of  the  expenses  of  admin- 
istration, or  to  pay  legacies,  the  court  may  make  an  order 


666  BUSINESS   LiVWS  FOB  BUSINESS    MEN. 

to  sell  so  much  of  the  personal  property  as  may  be  neces- 
sary. Partnership  interests  may  also  be  ordered  sold,  when 
it  appears  to  be  for  the  best  interest  of  the  estate. 

Sales  of  personal  property  must  be  made  at  public  auc- 
tion, unless  the  court  expressly  orders  a  private  sale.  Sale? 
of  personal  property  can  only  be  had  after  notice  given  of 
at  least  ten  days,  by  posting  notices  in  three  public  places  in 
the  county,  or  by  publication  in  a  newspaper. 

(b) — Sale  or  Mortgage  of  Real  Property. — When  the  per- 
sonal estate  in  the  hands  of  the  executor  or  administrator 
is  insufficient  to  pay  the  family  allowance,  and  the  debts  and 
charges  of  administration,  or  the  claims  outstanding 
against  the  decedent,  or  legacies;  or  when  it  appears  to  the 
satisfaction  of  the  court  that  it  is  for  the  advantage,  benefit, 
and  best  interest  of  the  estate  and  those  interested  therein, 
that  the  real  estate  or  some  part  thereof  be  sold ;  the  ex- 
ecutor or  administrator  may  sell  any  real  as  well  as  per- 
sonal property  of  the  estate,  upon  the  order  of  the  court. 
The  court  may  order  all  or  a  part  of  the  real  estate  sold. 

The  land  may  be  mortgaged,  instead  of  being  sold,  if  the 
court  shall  be  satisfied  that  a  mortgage  will  be  best  for  the 
estate  and  for  all  concerned. 

If  a  sale  be  ordered,  it  may  be  either  for  cash,  or  on  credit 
not  exceeding  one  year. 

The  land  may  be  sold  in  one  parcel  or  in  subdivisions,  as 
the  executor  or  administrator  shall  judge  most  beneficial 
to  the  estate,  unless  the  court  otherwise  specially  directs. 

The  sale  of  real  estate  may  be  at  public  auction,  or  at 
private  sale,  as  the  court  may  direct. 

Sales  at  public  auction  must  be  made  in  the  county 
where  the  land  is  situated ;  but  when  the  land  is  situated  in 
two  or  more  counties,  it  may  be  sold  in  either.  The  sale 
must  be  made  between  the  hours  of  nine  o'clock  in  the 
morning  and  the  setting  of  the  .sun  on  the  same  day. 

If  the  sale  is  at  private  sale,  bids  must  be  presented  to 
the  executor  or  administrator  in  writing,  or  the  bids  may 


ADMINISTRATION    OF   ESTATES.  667 

be  filed  in  the  office  of  the  clerk  of  the  court.     Notice  of 
receiving  bids  must  be  given  as  directed  by  the  court. 

(c) — Confirmation  of  Sale. — The  sale  of  real  estate  must 
be  confirmed  by  the  Superior  Court.  The  executor  or 
administrator  must  make  a  report  to  the  court  after  the 
sale,  and  if  the  court  is  of  the  opinion  that  the  proceedings 
were  unfair,  or  that  the  property  was  sold  for  less  than 
its  value,  and  that  a  new  ofifer  exceeding  the  selling  price 
at  least  ten  per  cent,  exclusive  of  expenses  of  a  new  sale, 
may  be  obtained,  the  court  will  refuse  to  confirm  the 
sale,  and  will  order  another  sale.  On  the  contrary,  if  it 
appears  to  the  court  that  the  sale  was  legally  made  and 
fairly  conducted,  and  that  ten  per  cent  more  cannot  be 
obtained,  an  order  will  be  made  confirming  the  sale  and 
directing  conveyances  to  be  executed ;  and  such  sale  from 
that  time  becomes  confirmed  and  valid.  But  even  if  the 
sale  was  not  fair,  and  was  made  for  less  than  the  value  of 
the  property,  the  court  is  not  absolutely  required  to  order 
another  sale;  for  if  an  oflfer  of  ten  per  cent  more  in  amount 
than  that  named  in  the  return  of  the  first  sale  be  made  to 
the  court,  in  writing,  by  a  responsible  person,  it  is  in  the 
discretion  of  the  court  to  accept  such  offer  and  confirm  the 
sale  to  such  person,  without  ordering  a  new  sale. 

Code  of  Civil  Procedure,  Sections  1536,  1542,  1544, 
1547,  1548,  1549,  1552,  1554. 

Section  1147.— SALE  UNDER  A  WILL.— When  prop- 
erty is  directed  by  will  to  be  sold,  or  authority  is  given  in 
the  will  to  sell  property,  the  executor  may  sell  any  property 
of  the  estate  without  the  order  of  the  court,  and  either  by 
public  or  private  sale,  and  with  or  without  notice;  but  the 
executor  must  make  a  return  to  the  court  of  such  sales,  as 
in  other  cases ;  and  if  directions  are  made  in  the  will  as  to 
the  mode  of  selling,  or  the  particular  property  to  be  sold, 
such  directions  must  be  observed.  In  either  case  no  title 
passes  unless  the  sale  is  confirmed  by  the  court. 
Code  of  Civil  Procedure,  Section  1561. 


668  BUSINESS  LAWS  FOR  BUSINESS   MEN. 

Section  1148.— COMPENSATION  OF  EXECUTORS 
AND  ADMINISTRATORS.— The  law  allows  an  executor 
or  administrator  commissions  on  the  whole  estate  ac- 
counted for  by  him  as  follows :  For  the  first  thousand  dol- 
lars, at  the  rate  of  7  per  cent;  for  the  next  nine  thousand 
dollars,  at  the  rate  of  four  per  cent ;  for  the  next  ten  thou- 
sand dollars,  at  the  rate  of  three  per  cent;  for  the  next 
thirty  thousand  dollars,  at  the  rate  of  two  per  cent ;  for 
the  next  fifty  thousand  dollars,  at  the  rate  of  one  per  cent; 
and  for  all  above  one  hundred  thousand  dollars,  at  the  rate 
of  one-half  of  one  per  cent. 

Section  1149.— ATTORNEY  FEES.— Executors  and 
administrators  must  be  allowed,  for  fees  of  their  attorneys, 
for  conducting  the  ordinary  probate  proceedings,  the  same 
amounts  specified  in  the  preceding  sections  as  commissions 
for  their  own  services. 

In  all  cases,  such  further  allowance  may  be  made  as  the 
court  may  deem  just  and  reasonable,  for  any  extraordinary 
service,  slich  as  sales  or  mortgages  of  real  estate,  con- 
tested or  litigated  claims  against  the  estate,  litigation  in 
regard  to  the  property  of  the  estate,  and  such  other  litiga- 
tion as  it  may  become  necessary  for  the  executor  or  admin- 
istrator to  prosecute  or  defend. 

Code  of  Civil  Procedure,  Section  1619. 

Section  1150.— ACCOUNTS  OF  EXECUTORS  AND 
ADMINISTRATORS.— When  required  by  the  court, 
either  upon  its  own  motion  or  upon  the  application  of  any 
person  interested  in  the  estate,  the  executor  or  administra- 
tor must  render  an  account  under  oath,  showing  the 
amount  of  money  received  and  expended  by  him,  the 
amount  of  all  claims  presented  against  the  estate,  and  the 
names  of  the  claimants,  and  all  other  matters  necessary  to 
show  the  condition  of  its  affairs.  Objections  may  be  made 
to  the  correctness  of  the  account,  by  any  person  interested, 
which  the  court  will  hear  and  determine. 

Code  of  Civil  Procedure,  Section  1622  (as  amended 
March  29,  1907.) 


ADMINISTRATION   OP   ESTATES.  669 

Section  1151.— PAYMENT  OF'  DEBTS.— The  debts  of 
the  estate  must  be  paid  in  the  following  order: 

1.  Funeral  expenses; 

2.  Expenses  of  the  last  sickness ; 

3.  Debts  having  preference  by  the  laws  of  the  United 
States ; 

4.  Judgments  rendered  against  the  decedent  in  his  life 
time,  and  mortgages  and  other  liens  in  the  order  of  their 
date ;. 

5.  All  other  demands  against  the  estate. 

The  preference  given  to  a  mortgage  or  lien  only  extends 
to  the  proceeds  of  the  property  subject  to  the  mortgage  or 
lien. 

Code  of  Civil  Procedure,  Sections  1643,  1644. 

Section  1152.— ERECTION  OF  MONUMENT.— Ex- 
ecutors and  administrators  of  the  estates  of  deceased  per- 
sons have  authority  to  expend  a  reasonable  sum  out  of  the 
estate  to  erect  a  monument,  or  tombstone,  suitable  to 
mark  the  grave  of  the  deceased. 

Section  1153.— PARTIAL  DISTRIBUTION  OF  ES- 
TATE.— At  any  time  after  four  months  from  the  issuing 
of  letters  to  an  executor  or  administrator  any  heir,  devisee, 
or  legatee  may  apply  to  the  Superior  Court  for  the  legacy 
or  share  of  the  estate  to  which  he  is  entitled.  If,  on  the 
hearing  of  the  application,  it  appears  to  the  court  that  the 
estate  is  but  little  in  debt,  and  that  the  share  of  the  party 
applying  may  be  allowed  him  without  injury  to  the  cred- 
itors of  the  estate,  the  court  must  order  the  executor  or 
administrator  to  deliver  to  him  the  whole  portion  of  the 
estate  to  which  he  may  be  entitled,  or  a  part  of  it;  pro- 
vided, he  must  give  the  executor  or  administrator  a  bond, 
to  secure  the  payment  of  his  portion  of  the  debts  due  from 
the  estate. 

Act  of  the  Legislature,  in  eflFect  May  23,  1907. 


670  BUSINESS   LAWS  FOR,  BUSINESS    MEN. 

Section  1154.— FINAL  DISTRIBUTION  OF  ESTATE. 

— Upon  the  settlement  of  the  final  account  of  an  executor 
or  administrator,  or  at  any  subsequent  time,  he  may  apply 
to  the  court  for  a  final  distribution  of  the  estate,  and  the 
court  will  then  proceed  to  distribute  what  remains  of  the 
estate  among  the  persons  who  are  by  law  entitled  to  it. 
Code  of  Civil  Procedure,  Section  1665. 

Section   1155.— SUCCESSION   TO   PROPERTY.— If  a 

person  dies,  leaving  a  will,  his  property  goes  to  the  per- 
sons named  therein  as  legatees.  Who  may  make  a  will, 
who  may  take  by  will,  and  what  may  be  disposed  of  by 
will,  has  been  discussed  under  the  heading  "Last  Wills  and 
Testaments."  We  now  consider  how  the  property  of  a 
person  who  dies,  leaving  no  will,  will  descend  upon  his 
death,  and  to  whom  it  will  go  in  succession  as  his  heirs  at 
law. 

The  Code  defines  the  term  succession,  as  the  coming  in 
of  another  to  take  the  property  of  one  who  dies  without 
disposing  of  it  by  will.  The  property,  both  real  and  per- 
sonal, of  one  who  dies  without  disposing  of  it  by  will, 
passes  to  the  heirs  of  the  intestate,  subject  to  the  control 
of  the  probate  court,  and  to  the  possession  of  any  admin- 
istrator appointed  by  the  court  for  the  purposes  of  adminis- 
tration. When  a  person  dies  without  disposing  of  his 
property  by  will,  it  is  succeeded  to  and  must  be  distributed, 
subject  to  the  payment  of  his  debts  in  the  following 
manner : 

1.  If  the  decedent  leaves  a  surviving  husband  or  wife, 
and  only  one  child,  or  the  lawful  issue  of  one  child,  in  equal 
shares  to  the  surviving  husband,  or  wife  and  child,  or  issue 
of  such  child.  If  the  decedent  leaves  a  surviving  husband  or 
wife,  and  more  than  one  child  living,  or  one  child  living 
and  the  lawful  issue  of  one  or  more  deceased  children,  one- 
third  to  the  surviving  husband  or  wife,  and  the  remainder 
in  equal  shares  to  his  children  and  to  the  lawful  issue  of 
any  deceased  child,  by  right  of  representation ;  but  if  there 


ADMINISTRATION    OF   ESTATES.  671 

is  no  child  of  decedent  living  at  his  death,  the  remainder 
goes  to  all  of  his  lineal  descendants ;  and  if  all  of  the 
descendants  are  in  the  same  degree  of  kindred  to  the  de- 
cedent, they  share  equally,  otherwise  they  take  according 
to  the  right  of  representation.  If  the  decedent  leaves  no 
surviving  husband  or  wife,  but  leaves  issue,  the  whole  es- 
tate goes  to  such  issue;  and  if  such  issue  consists  of  more 
than  one  child  living,  or  one  child  living  and  the  lawful 
issue  of  one  or  more  deceased  children,  then  the  estate 
goes  in  equal  shares  to  the  children  living,  or  the  child  liv- 
ing and  the  issue  of  the  deceased  child  or  children  by  right 
of  representation ; 

2.  If  the  decedent  leaves  no  issue,  the  estate  goes  one- 
half  to  the  surviving  husband  or  wife,  and  the  other  half 
to  the  decedent's  father  and  mother  in  equal  shares,  and 
if  either  is  dead  the  whole  of  said  half  goes  to  the  other. 
If  there  is  no  father  or  mother,  then  one-half  goes  in  equal 
shares  to  the  brothers  and  sisters  of  decedent  and  to  the 
children  or  grandchildren  of  any  deceased  brother  or  sister 
by  right  of  representation.  If  the  decedent  leaves  no  issue, 
nor  husband  nor  wife,  the  estate  must  go  to  his  father  and 
mother  in  equal  shares,  or  if  either  is  dead  then  to  the 
other ; 

3.  If  there  is  neither  issue,  husband,  wife,  father,  nor 
mother,  then  in  equal  shares  to  the  brothers  and  sisters  of 
decedent  and  to  the  children  or  grandchildren  of  any  de- 
ceased brother  or  sister,  by  right  of  representation; 

4.  If  the  decedent  leaves  a  surviving  husband  or  wife, 
and  neither  issue,  father,  mother,  brother,  sister,  nor  the 
children  nor  grandchildren  of  a  deceased  brother  or  sister, 
the  whole  estate  goes  to  the  surviving  husband  or  wife; 

5.  If  the  decedent  leaves  neither  issue,  husband,  wife, 
father,  mother,  brother  nor  sister,  the  estate  must  go  to 
the  next  of  kin,  in  equal  degree,  excepting  that,  when  there 
are  two  or  more  collateral  kindred,  in  equal  degree,  but 
claiming  through   different    ancestors,    those    who    claim 


672  BUSINESS   LAWS  FOR  BUSINESS   MEN, 

through  the  nearest  ancestor  must  be  preferred  to  those 
claiming  through  an  ancestor  more  remote; 

6.  If  the  decedent  leaves  several  children,  or  one  child 
and  the  issue  of  one  or  more  children,  and  any  such  sur- 
viving child  dies  under  age  and  not  having  been  married, 
all  the  estate  that  came  to  the  deceased  child  by  inheritance 
from  such  decedent  descends  in  equal  shares  to  the  other 
children  of  the  same  parent  and  to  the  issue  of  any  such 
other  children  who  are  dead,  by  right  of  representation; 

7.  If,  at  the  death  of  such  child,  who  dies  under  age, 
not  having  been  married,  all  the  other  children  of.  his  par- 
ents are  also  dead,  and  any  of  them  has  left  issue,  the 
estate  that  came  to  such  child  by  inheritance  from  his 
parent  descends  to  the  issue  of  all  other  children  of  the 
same  parent;  and  if  all  the  issue  are  in  the  same  degree  of 
kindred  to  the  child,  they  share  the  estate  equally,  other- 
wise they  take  according  to  the  right  of  representation ; 

8.  If  the  deceased  is  a  widow,  or  widower,  and  leaves 
no  issue,  and  the  estate,  or  any  portion  thereof,  was  com- 
mon property  of  such  decedent  and  his  or  her  deceased 
spouse,  while  such  spouse  was  living,  such  property  goes 
in  equal  shares  to  the  children  of  such  deceased  spouse 
and  to  the  descendants  of  such  children  by  right  of  repre- 
sentation, and  if  none,  then  one-half  of  such  common  prop- 
erty goes  to  the  father  and  mother  of  such  decedent  in 
equal  shares,  or  to  the  survivor,  of  them  if  either  be  dead, 
or  if  both  be  dead,  then  in  equal  shares  to  the  brothers  and 
sisters  of  such  decedent  and  to  the  descendants  of  any 
deceased  brother  or  sister  by  right  of  representation,  and 
the  other  half  goes  to  the  father  and  mother  of  such  de- 
ceased spouse  in  equal  shares,  or  to  the  survivor  of  them 
if  either  be  dead,  or  if  both  be  dead,  then  in  equal  shares 
to  the  brothers  and  sisters  of  such  deceased  spouse  and  to 
the  descendants  of  any  deceased  brother  or  sister  by  right 
of  representation. 

If  the  estate,  or  any  portion  thereof,  was  separate  prop- 
erty of  such  deceased  spouse,  while  living,  and  came  to 


N^4 


ADMINISTRATION   OP   ESTATES.  673 

such  decedent  from  such  spouse  by  descent,  devise,  or 
bequest,  such  property  goes  in  equal  shares  to  the  children 
of  such  spouse  and  to  the  descendants  of  any  deceased 
child  by  right  of  representation,  and  if  none,  then  to  the 
father  and  mother  of  such  spouse,  in  equal  shares,  or  to 
the  survivor  of  them  if  either  be  dead,  or  if  both  be  dead, 
then  in  equal  shares  to  the  brothers  and  sisters  of  such 
spouse  and  to  the  descendants  of  any  deceased  brother  or 
sister  by  right  of  representation. 

9.  If  the  decedent  leaves  no  husband,  wife,  or  kindred, 

and  there  are  no  heirs  to  take  his  estate  or  any  portion 

thereof,  under  subdivisions  eight  of  this  section,  the  same 

escheats  to  the  State  for  the  support  of  the  common  schools. 

Act  of  the  Legislature,  in  effect  May  18,  1907. 

(a) — Inheritance  of  Husband  and  Wife  from  Each  Other. 

— The  above  provisions  of  this  Section,  as  to  the  inheritance 
of  the  husband  and  wife  from  each  other,  apply  only  to  the 
separate  property  of  the  decedent. 

(b) — Distribution  of  Community  Property  on  Death  of 
Husband. — Upon  the  death  of  the  husband,  one-half  of  the 
community  property  goes  to  the  surviving  wife,  and  the 
other  half  is  subject  to  the  testamentary  disposition  of  the 
husband,  and  in  the  absence  of  such  disposition,  goes  to  his 
descendants  equally,  if  such  descendants  are  in  the  same 
degree  of  kindred  to  the  deceased,  otherwise  according  to 
the  right  of  representation ;  and  in  the  absence  of  both  such 
testamentary  disposition  and  such  descendants,  is  subject 
to  distribution  in  the  same  manner  as  the  separate  property 
of  the  husband.  In  case  of  the  dissolution  of  the  community 
by  the  death  of  the  husband,  the  entire  community  prop- 
erty is  equally  subject  to  his  debts,  the  family  allowance, 
and  the  charges  and  expenses  of  administration. 

(c) — Distribution  of  Community  Property  on  Death  of 
Wife. — Upon  the  death  of  the  wife,  the  entire  community 
property,  without  administration,  belongs  to  the  surviving 
husband.     If  any  portion  of  the  community  property  has 


674  BUSINESS   LAWS  FOR  BUSINESS    MEN. 

been  set  apart  for  the  wife  by  judicial  decree,  for  her  support 
iand  maintenance,  this  portion  does  not  go  to  her  husband 
upon  her  death,  but  may  be  willed  away  by  her;  and  in 
the  absence  of  her  testamentary  disposition,  it  will  go  to  her 
heirs,  exclusive  of  her  husband. 

Civil  Code,  Sections  1400,  1401,  1402. 

;   Section  1156.— RIGHTS  OF  ILLEGITIMATE  CHILD. 

— Every  illegitimate  child  is  an  heir  of  the  person  who,  in 
writing,  signed  in  the  presence  of  a  competent  witness,  ac- 
knowledges himself  to  be  the  father  of  such  child.  An 
illegitimate  child  is  in  all  cases  the  heir  of  his  mother, 
whether  the  father  acknowledges  him  or  not.  An  illegiti- 
mate child  cannot  claim  any  part  of  the  estate  of  any  de- 
ceased children  or  other  heirs  of  his  father  or  mother,  un- 
less his  parents  marry,  and  his  father  after  such  marriage 
acknowledges  him  and  adopts  him  into  his  family. 
Civil  Code,  Section  1387. 

Section  1157.— ADVANCEMENTS.— Any  estate,  real 
or  personal,  that  may  have  been  given  by  the  decedent  in 
his  lifetime  as  an  advancement  to  any  child  or  other  heir, 
is  considered  a  part  of  the  estate,  so  far  as  regards  its 
division  and  distribution,  and  must  be  taken  by  the  person 
receiving  it  toward  his  share  of  the  estate.  If  the  amount 
of  the  advancement  exceeds  the  share  of  the  heir,  he  will 
be  excluded  from  any  further  portion  in  the  division  and 
distribution  of  the  estate,  but  he  will  not  be  required  to 
refund  any  part  of  his  advancement.  If  the  amount  ad- 
vanced be  less  than  his  share,  he  will  be  entitled  to  so 
much  more  as  will  give  him  his  full  share  of  the  estate. 
All  gifts  and  grants  are  deemed  to  have  been  made  as  an 
advancement,  if  expressed  in  the  gift  or  grant  to  be  so 
made,  or  if  charged  in  writing  by  the  deceased  as  an' ad- 
vancement, or  acknowledged  in  writing  as  such  by  the 
child  or  other  heir. 

Civil  Code,  Sections  1395,  1396,  1397. 


ADMINISTRATION   OF   ESTATES.  675 

Section  1158.— CONTRACT  TO  CONVEY  REAL 
ESTATE. — If  any  person,  who  is  bound  by  a  contract  in 
writing  to  convey  any  real  property,  dies  before  making 
the  conveyance,  the  Superior  Court  may  make  a  decree 
authorizing  his  executor  or  administrator  to  make  a  deed 
of  the  land  to  the  person  entitled  thereto.  The  person  en- 
titled to  the  deed  has  the  right  to  file  a  petition  in  court/ 
showing  the  contract,  and  will  then  be  allowed  to  prove  it 
If  he  proves  his  right  to  the  deed,  it  will  be  made  to  him 
by  order  of  the  court,  and  will  convey  the  same  title  which 
a  deed  signed  by  the  deceased  would  have  conveyed  if 
made  in  his  lifetime. 

Section  1159.— DISCHARGE  OF  ADMINISTRATOR 
OR  EXECUTOR.— When  the  estate  has  been  fully  ad- 
ministered upon,  and  it  is  shown,  by  the  executor  or  admin- 
istrator, by  the  production  of  satisfactory  vouchers,  that 
he  has  paid  all  sums  of  money  due  from  him,  and  delivered 
up  under  order  of  the  court  all  property  of  the  estate  to  the 
persons  entitled  thereto,  the  court  will  make  a  decree  dis- 
charging him  from  all  liability  to  be  incurred  thereafter. 


-^ 


51  rj 


#-LIBRMY(;^:^ 


In 


13DNVS0 


^ll]RKARY6k 


Si\^ 


^m%no\^^ 


^lUM^sdlUji 


^\tiMAliY 


,^\m^ 


SCHOOL  OF  LAW  LIBRARY 

.UNIVERSITY  OF  CALIFORNIA 

LOS  ANGELES 


-iiy 


'On 


mz 


.avaaii-^v 


AHvaan 


;=5^ 


